Can my SMSF still borrow to buy a residential investment property? From 10 August the answer changes

The plan is usually years in the making. The fund was set up a while back, the balance has finally grown to the point where it can do something, and somewhere — a seminar, a broker, a friend who did it in 2019 — the idea lands: the fund can borrow, so let it buy an investment unit.

That has been a legal, well-worn strategy for more than a decade. From 10 August 2026 it stops being available for new arrangements, and the cut-off is a date, not a transition period.

What the law now says

The Treasury Laws Amendment (Tax Reform No. 1) Act 2026 received Royal Assent on 26 June 2026. The part that matters here is short: limited recourse borrowing arrangements entered into on or after 10 August 2026 to purchase real property can only be used to acquire business real property.

It is worth being precise about the term. A limited recourse borrowing arrangement — LRBA — is the narrow exception that lets a super fund borrow at all. The asset is held in a separate holding trust, and the lender's recourse is limited to that asset alone: if it all goes wrong, the rest of the fund is out of reach. That structure is unchanged.

It is equally worth being precise about what has not happened. The ATO's own wording is that LRBAs are not banned — an SMSF can still borrow, or maintain a borrowing, under an LRBA to acquire an asset. There are no changes to how LRBAs operate, or to the other exceptions to the general prohibition on borrowing. What narrowed is one category, real property, and it narrowed to business real property.

And it applies to every lender. The ATO states the changes apply where the arrangement is an LRBA regardless of whether the lender is a bank, a non-bank lender or a related party — the identity of the lender does not determine whether the property must be business real property.

What counts as business real property

Business real property generally means land and buildings used wholly and exclusively in a business. The clean cases are the ones you would picture: the warehouse the family company trades from, the shopfront, the consulting rooms. There is one long-standing carve-out for farms — real property used in a primary production business can still qualify even though it contains a private dwelling, provided any dwelling used for private or domestic purposes sits on no more than two hectares and the main use of the whole property is not domestic or private.

Residential property is not automatically excluded. If a residential property genuinely meets the business real property definition, it can still be acquired under an LRBA. The point is that an ordinary residential rental does not meet it. A fund can also still invest in residential property that is not business real property, provided it satisfies every other regulatory rule — what it cannot do is finance that purchase under an LRBA.

Two timing rules do a lot of work here. The property must be business real property at the time the LRBA is entered into, and it must remain business real property for the entire life of the LRBA. Fail either and, in the ATO's words, the SMSF has breached the law against borrowing and compliance action may apply. One piece of reassurance on the second rule: commercial premises do not stop being business real property merely because the owner is looking for a new tenant — but they do if the owner abandons plans to lease.

The three situations this does not touch

If you are already in an LRBA, or already in a contract, the change may pass you by entirely. The ATO lists three arrangements as unaffected: existing LRBAs entered into before 10 August 2026; refinancing of those existing LRBAs; and binding contracts to acquire real property exchanged before 10 August 2026, even if the contract settles or the LRBA is entered into after that date.

The third one is worth reading twice, because it moves the decisive date earlier than most people assume. The ATO's own example is an SMSF that exchanges a binding off-the-plan contract for real property that is not business real property before 10 August 2026, has finance approved after that date, and settles twelve months later. The changes do not apply to that acquisition. Exchange is what counts — not settlement, and not finance approval.

Two limits sit on that comfort. Refinancing means entering a new loan contract for the same asset, with the same or a new lender — it is not a licence to roll the borrowing onto a different property. And while later variations to a contract will generally not change its protected status, the ATO notes that a contract changed so significantly that its fundamental terms no longer exist may be considered a new arrangement.

Where people are getting this wrong

The first misreading is that SMSFs can no longer own residential property. They can. Ownership is not what changed — borrowing to acquire it is.

The second is more expensive: the assumption that a related-party loan sidesteps the restriction, because the money comes from a member or the family trust rather than a bank. It does not. The ATO has addressed that directly, and the lender's identity is explicitly irrelevant.

If a purchase is live right now, the useful question is narrow and factual: has a binding contract been exchanged, and on what date? That single fact decides which set of rules the fund is under. If it has not, and the target was an ordinary residential rental, the plan has to change shape rather than just change lender — an unborrowed purchase inside the fund, or holding the property outside super, are genuinely different propositions on cash flow, land tax and capital gains, and they are worth modelling before anything is signed.

This is general information current as at 1 August 2026, not advice for your fund. SMSF decisions turn on the fund's trust deed, its investment strategy and the members' circumstances, and should be made with advice specific to them. Where we can help is the part that sits either side of the structure — what a property actually costs you after tax, and what the capital gains position looks like when you eventually sell. That is what our property investor tax service and the investment property calculator are for, and the right time to run those numbers is before the contract, not after.