Self-managed super funds face a new restriction on borrowing to acquire real property. For limited recourse borrowing arrangements (LRBAs) entered into on or after 10 August 2026, the property must qualify as business real property, subject to transitional protections.

This generally prevents new borrowing arrangements for ordinary residential rental properties. However, the change does not prohibit every residential property purchase by an SMSF, and qualifying existing arrangements remain protected. The distinction between new borrowing, existing loans and purchases using available fund money is central to understanding the rules.

What the legislation changed

The Treasury Laws Amendment (Tax Reform No. 1) Act 2026 received Royal Assent on 26 June 2026. Schedule 5 amended the superannuation borrowing provisions by adding a business real property requirement where the asset being acquired is real property.

The amendment applies to arrangements entered into from commencement under which money is borrowed, or borrowing is maintained, to acquire assets. Transitional provisions protect specified earlier borrowing and acquisition arrangements.

The restriction concerns the eligibility of real property under the LRBA framework. It should not be described as a blanket prohibition on SMSFs owning residential property or as a requirement to dispose of existing residential investments.

Which arrangements remain protected?

The transition rules cover existing LRBAs entered into before 10 August 2026 and refinancing of those arrangements.

They also protect binding contracts to acquire real property exchanged before that date, even where settlement or entry into the associated LRBA occurs later.

Consequently, settlement after the commencement date does not, by itself, exclude a purchase from transitional protection. The timing and nature of the underlying acquisition arrangement matter.

These protections relate to the new business real property restriction. They do not remove the other requirements governing SMSF borrowing and investments. An existing arrangement must continue to comply with the rules applicable to it.

What qualifies as business real property?

Business real property generally involves an eligible interest in land or buildings used wholly and exclusively in one or more businesses.

A warehouse, factory or office used in business operations may satisfy that requirement. However, the classification depends on the ownership interest and actual use of the property, rather than simply its description in a sale advertisement.

The definition can also involve specific treatment of properties containing a dwelling, including certain primary production properties. A residential building label alone therefore does not resolve every case.

For an ordinary house or apartment rented for private residential accommodation, trustees should not assume that receiving rental income makes the property business real property. The statutory business-use test must be satisfied.

Residential purchases without borrowing

An SMSF can still acquire residential property using available fund money, provided the purchase complies with the wider superannuation investment rules.

The investment must satisfy the sole purpose test and be consistent with the fund’s investment strategy. Ordinary residential investment property generally cannot be acquired from a related party or used as accommodation by fund members or their related parties.

Buying without a loan does not remove these obligations. Property ownership also creates expenses, including maintenance, insurance, rates and administration costs, which the fund must be able to meet.

Where an existing protected LRBA continues, loan repayments and property expenses remain relevant to the fund’s cash flow. Transitional protection does not eliminate the financial obligations associated with the investment.