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The changes restrict the ability of SMSFs to use limited recourse borrowing arrangements (LRBAs) to acquire residential property. This is a significant change for trustees who were considering purchasing residential investment property through their SMSF using borrowed funds. 

Importantly, this is not a ban on SMSFs owning residential property. It is a restriction on using a new LRBA to acquire real property unless that property is business real property. 

When did the change become law? 

The changes became law when the Treasury Laws Amendment (Tax Reform No. 1) Act 2026 received Royal Assent on 26 June 2026. 

However, the LRBA restriction does not commence immediately. The relevant change commences 45 days after Royal Assent, which means the commencement date is 10 August 2026. 

From that date, SMSFs will no longer be able to enter into new LRBAs to acquire ordinary residential investment property. 

What has changed? 

The law changes the conditions that allow an SMSF to borrow under an LRBA. 

Under the amended rules, where the asset being acquired under an LRBA is real property, that property must be business real property. 

This means a new LRBA can still be used to acquire business real property, provided the arrangement otherwise complies with the SIS Act and the usual SMSF borrowing rules. 

However, an ordinary residential property, such as a house, apartment or residential rental property, will generally not satisfy the business real property requirement. As a result, an SMSF will generally not be able to use a new LRBA to acquire that type of property after commencement. 

Does this affect existing residential property LRBAs? 

Existing residential property LRBAs are grandfathered. 

This means an SMSF with an existing LRBA in place before commencement should not be required to unwind the arrangement merely because of the new law. 

Trustees with existing LRBAs should still ensure the arrangement remains compliant, including that: 

• The loan remains limited in recourse; 
• The bare trust or holding trust structure is correctly maintained; 
• The asset is held in the correct name; Repayments are made in accordance with the loan terms; 
• Related party loans are maintained on arm’s length terms; and 
• The investment continues to be consistent with the fund’s investment strategy. 

What if a contract has already been signed? 

The transitional provisions are important. 

The change does not apply where the acquisition of the asset happens under an arrangement entered into before commencement. This means that where a purchase contract was entered into before 10 August 2026, the arrangement is protected, even if settlement occurs after that date. 

This is particularly relevant for off-the-plan purchases or transactions where settlement may occur well after the contract date. 

However, trustees should retain clear evidence of when the contract was entered into and should obtain advice before assuming a transaction is protected. 

Does settlement need to occur before 10 August 2026? 

Based on the transitional wording, settlement does not need to occur before 10 August 2026. 

The key issue is whether the acquisition arrangement, such as the purchase contract, was entered into before commencement. 

If the contract was entered into before 10 August 2026, settlement may occur after commencement without automatically causing the arrangement to fall outside the transitional protection. 

That said, trustees should ensure all documentation is carefully reviewed, particularly where there are unusual contract terms, nominations, rescissions, substitutions of purchaser, changes to bare trustee arrangements, or other variations. 

Can an existing residential property LRBA be refinanced? 

The transitional rules also protect refinancing of borrowing under an arrangement entered into before commencement. 

This means an SMSF with a grandfathered residential property LRBA can refinance that existing borrowing after commencement, provided the refinance is genuinely connected to the existing pre-commencement borrowing arrangement. 

This is an important practical point, as it means affected funds should not necessarily be locked into their current lender for the remaining life of the loan. 

What should trustees do now? 

Trustees who already have an SMSF residential property LRBA should review their documentation and ensure the arrangement remains compliant. 

Trustees who signed a purchase contract before 10 August 2026 should retain evidence of the contract date and seek advice on whether the arrangement is covered by the transitional rules. 

Trustees considering a new SMSF property purchase after 10 August 2026 should be aware that an LRBA will generally only be available where the real property is business real property. 

Trustees should also review their investment strategy to ensure it remains appropriate, particularly where the fund has exposure to property, borrowing, liquidity risks, concentration risks or related party arrangements. 

Key Takeaways 

The main points are: 

• The LRBA changes are now law; 

• The Act received Royal Assent on 26 June 2026; 

• The LRBA restriction commences on 10 August 2026; 

• From commencement, real property acquired under a new LRBA must be business real property; 

• Ordinary residential investment property will generally not qualify; 

• Existing residential property LRBAs are grandfathered; 

• Refinancing of existing pre-commencement arrangements is protected; 

• Contracts entered into before commencement are protected, even if settlement occurs after commencement; 

• SMSFs can still acquire residential property without borrowing; and 

• SMSFs can still use LRBAs for business real property.