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Significant Changes to SMSF Residential Property Borrowing
On 26 June 2026, the Treasury Laws Amendment (Tax Reform No. 1) Bill 2026 received Royal Assent following its passage through both Houses of Parliament. Included within the legislation are amendments that significantly restrict the ability of Self-Managed Superannuation Funds (SMSFs) to borrow to purchase residential property.
The amendments commence 45 days after Royal Assent, meaning that from 10 August 2026, SMSFs will no longer be permitted to enter into new Limited Recourse Borrowing Arrangements (LRBAs) to acquire residential property.
What is an LRBA
An LRBA is a borrowing arrangement that allows an SMSF to acquire an asset using borrowed funds, while limiting the lender’s recourse to the asset acquired rather than the broader assets of the SMSF. Since their introduction, LRBAs have been a popular strategy for SMSFs seeking to invest in direct property.
What is Changing?
From 10 August 2026, SMSFs will no longer be able to establish new LRBAs to acquire residential property. Borrowing will instead be limited to assets that satisfy the definition of business real property (BRP) under the superannuation legislation.
Importantly:
• Existing residential property LRBAs will be grandfathered and can continue under current arrangements.
• Business real property acquisitions through LRBAs remain permissible.
• SMSFs may still purchase residential property where sufficient cash is available within the fund, as the restriction applies to borrowing, not ownership of residential property itself.
What is Business Real Property (BRP)?
Business real property generally means land and buildings used wholly and exclusively in carrying on a business. However, there may still be some uncertainty in applying this definition, particularly to vacant land or newly constructed residential property held as trading stock by a developer. Earlier ATO guidance has confirmed examples of business real property to include offices, warehouses, factories, medical suites, primary production properties, vacant land and developers’ property stock. Under the new rules, SMSFs may still use an LRBA to acquire business real property, provided all other superannuation borrowing requirements are met.
What Does This Mean for SMSF Trustees?
Trustees who currently hold residential property through an existing LRBA will generally not be affected by the changes, provided the arrangement was established before 10 August 2026. The legislation also preserves the ability to maintain or refinance an existing LRBA.
The greatest impact will be on trustees who were intending to acquire residential or mixed-use property
using borrowed funds after the commencement date (10 August 2026), as this strategy will no longer be available. Trustees considering future property investments may need to reassess how those investments are funded and structured.
What Should You Do?
If you are currently considering a residential property purchase through your SMSF, it is important to review your plans and understand how the new rules may affect your options.
Depending on your circumstances, alternative strategies may include:
• Purchasing residential property outright using existing SMSF funds.
• Acquiring eligible business real property, for which LRBA funding remains available.
• Increasing exposure to property through listed property trusts, real estate investment trusts (REITs), exchange-traded funds, managed funds or property funds.
The most suitable approach will depend on the fund’s investment objectives, available capital, liquidity requirements, risk profile and long-term retirement goals. Seeking advice before implementing any strategy can ensure the fund remains compliant and appropriately positioned under the new borrowing rules.
If you would like to discuss how these changes may affect your SMSF, please contact our office.
SMSF Sector Continues to Grow
The Australian Taxation Office’s (ATO’s) March 2026 SMSF Quarterly Statistical Report highlights the continued growth and resilience of the SMSF sector. As at March 2026, there were approximately 672,800 SMSFs with almost 1.24 million members, representing annual growth of around 6% in both fund and member numbers.
The SMSF sector now manages more than $1 trillion in assets, demonstrating its significant role within Australia’s superannuation system and the growing number of Australians seeking greater control over their retirement savings.
The report also showed strong demand for SMSFs, with more than 11,000 net new funds established during the March 2026 quarter, making it the strongest March quarter on record for SMSF growth.
While the popularity of SMSFs continues to increase, trustees should remember that greater control also brings greater responsibility. Managing an SMSF involves ongoing compliance, investment management and reporting obligations. Regular reviews of investment strategies, fund governance and retirement objectives remain essential to ensuring the fund continues to meet members’ long-term goals.
These latest statistics reinforce the continued confidence Australians have in the SMSF sector as a vehicle for building and managing retirement wealth. If you’re considering taking a more active role in managing your superannuation, now may be an ideal time to explore whether an SMSF is right for you. Our team can help you understand the benefits, risks and ongoing responsibilities of running an SMSF and, where appropriate, guide you through the establishment process. Contact us to discuss your circumstances and whether an SMSF may be a suitable strategy for your retirement planning objectives.
Happy New Financial Year
As we commence the 2026–27 financial year, we would like to take this opportunity to thank you for your continued support and trust in our firm. We value the opportunity to work with you and look forward to assisting you in the year ahead.
We remain committed to helping you navigate changes in taxation, superannuation and business matters, and to supporting you in achieving your financial goals.
SMSF Annual Compliance Reminder
As we begin the new financial year, we also remind SMSF trustees of the following lodgement deadlines:
• First-year SMSFs with a fund established during the 2025–26 financial year are generally required to lodge their first SMSF annual return by 28 February 2027.
• Existing SMSFs are generally required to lodge their 2026 SMSF annual return by 15 May 2027.
We wish you and your family a successful and prosperous financial year ahead.
Peter Camenzuli Partner
p +61 7 3222 8444
e pcamenzuli@pitcherpartners.com.au
Tracey Norris
Partner
p +61 7 3222 8444
e tnorris@pitcherpartners.com.au
Rebecca Nipperess
Director
p +61 7 3222 8444
e rnipperess@pitcherpartners.com.au
Jess Donsky Manager
p +61 7 3222 8444
e jdonsky@pitcherpartners.com.au
Jo Holland Manager
p +61 7 3222 8444
e jholland@pitcherpartners.com.au
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