Investing12 min readUpdated
SMSF borrowing rules in Australia 2026: what the end of residential LRBAs means for property investors
On 23 June 2026 Federal Parliament passed the Greens–Labor tax package with a last-minute amendment abolishing new residential Limited Recourse Borrowing Arrangements inside SMSFs. Existing LRBAs are grandfathered; commercial business real property LRBAs are unchanged. Here is the broker-grade map — three buckets, refinancing risk, and what to do now.
Azure Home Loans — general information only, not personal credit advice.
Updated 23 June 2026 · SMSF lending service · Investor hub · Send an enquiry
On 23 June 2026, Federal Parliament passed the Albanese government's tax package with Greens support. Tucked inside the legislation was a last-minute amendment with significant consequences for property investors: the exemption that allowed self-managed super funds (SMSFs) to borrow money to purchase residential investment property has been abolished.
This closes what the financial services sector has long called a structural loophole — one that the Murray Financial System Inquiry recommended ending in 2014 over concerns about banking sector stability. More than a decade later, it is finally law — passed as part of the Greens–Labor compromise to secure budget support alongside the negative gearing and CGT reforms announced in May 2026.
If you currently hold residential property inside an SMSF, or were planning to use one to buy an investment property, this article explains exactly what has changed, what is protected, and what to do next. General information only — not personal financial, legal, or tax advice.
For the full LRBA mechanics (bare trust, liquidity, lender checklist), see our companion piece: SMSF property loan Australia — LRBA explained. For the complete service guide: SMSF property lending.
TL;DR — the three changes
| Change | What it means | When |
|---|---|---|
| No new residential LRBAs | SMSFs cannot take out new borrowings to purchase residential real estate | Effective 23 June 2026 |
| Existing LRBAs grandfathered | Current residential LRBA arrangements continue to their natural end | No forced unwinding |
| Commercial LRBAs unchanged | Borrowing to buy business real property (shop, warehouse, factory used in your business) | No change |
Key numbers: residential LRBAs account for less than 1% of all Australian home loans. Roughly 8,000–10,000 SMSFs nationally hold residential property under an LRBA. Narrow in reach — significant for those it affects.
What is an LRBA — and why did investors use it?
A Limited Recourse Borrowing Arrangement (LRBA) is the legal structure that allowed SMSFs to borrow to buy an asset — including residential property. Since 2007 it has been a popular strategy for investors who wanted to combine super tax advantages with direct property ownership.
| How LRBAs worked | What it meant |
|---|---|
| SMSF borrows from a lender | Loan is limited recourse — on default, lender can only seize the specific property, not other SMSF assets |
| Bare trust holds legal title | Property sits in a separate trust while the loan is outstanding; SMSF holds beneficial interest |
| Rental income flows to SMSF | Taxed at 15% in accumulation — below most personal marginal rates |
| Title transfers on repayment | Once the loan is repaid, property moves into the SMSF's name outright |
From 23 June 2026, that option is gone for new residential arrangements. Commercial business real property LRBAs continue unchanged.
The three buckets: which one is your SMSF?
| Bucket | Situation | What happens |
|---|---|---|
| Bucket 1 | SMSF owns residential property outright — no loan | No change. Hold inside super with no new LRBA restrictions. |
| Bucket 2 | SMSF has an existing residential LRBA | Grandfathered. Loan continues to natural end. No forced sale or refinance. |
| Bucket 3 | You were planning to borrow inside super for residential property | Strategy no longer available. New residential LRBAs cannot be established. |
Your existing LRBA — what changes and what does not
| Element | For grandfathered residential LRBAs |
|---|---|
| Loan repayments | Unchanged — continue as scheduled |
| Rental income | Unchanged — 15% in accumulation, pension-phase rules separate |
| Capital gains on sale | Unchanged — CGT concessions inside super still apply |
| Bare trust structure | Unchanged for the life of the loan |
| Refinancing | Grey area — may be treated as a new LRBA. Get SMSF legal advice before proceeding |
| Adding a new property | Not permitted under grandfathering |
The refinancing risk
If your SMSF has an existing residential LRBA and you are considering refinancing to a lower rate, do not proceed without specific legal advice. Whether a refinance is treated as a "new" LRBA is not yet fully settled by the . Acting without clarity could inadvertently breach the new rules and put your fund's grandfathered status at risk.
Historically, s67A SIS Act permitted refinance of an existing LRBA. The 23 June 2026 amendment may narrow that for residential security — transitional and refinancing guidance from the ATO may follow royal assent.
Before and after: two investors
Sarah — existing LRBA (grandfathered)
Sarah's SMSF purchased a two-bedroom Brisbane unit in 2022 using an LRBA. The fund borrowed $450,000; the property is now worth $620,000 with 12 years remaining on the loan.
| Element | Outcome |
|---|---|
| Position after 23 June 2026 | Fully grandfathered — no change required |
| Rental income | Still taxed at 15% inside the SMSF |
| Capital gain when sold | Still eligible for CGT concessions inside super |
| Risk to watch | Do not refinance without SMSF legal advice |
James — planned LRBA (no longer available)
James has $280,000 in his SMSF and was planning to borrow $420,000 for a Melbourne townhouse inside super.
| Element | Outcome |
|---|---|
| Position after 23 June 2026 | New residential LRBA cannot be established |
| SMSF balance | Remains in fund — can be invested in other asset classes |
| Alternatives | Buy residential outside super; commercial LRBA inside SMSF (still permitted); listed property trusts (REITs) inside the fund |
| Action | Reassess with a property accountant or SMSF adviser |
Commercial property LRBAs: still permitted
SMSFs can still borrow to purchase business real property — commercial premises used wholly and exclusively in a business.
| Property type | LRBA status after 23 June 2026 |
|---|---|
| New residential LRBA | Abolished |
| Existing residential LRBA | Grandfathered |
| Commercial / business real property LRBA | Still fully permitted |
| Vacant land for residential development | Treated as residential — new LRBAs not permitted |
| Mixed-use property | Seek specific advice — classification depends on use |
If you run a business and planned to use your SMSF to purchase your commercial premises via an LRBA, this strategy is completely unaffected. It remains one of the most tax-effective structures for business owners — with proper arm's-length lease documentation from day one.
Our SMSF lending guide covers commercial LRBA lender policy, liquidity buffers, and the broker-side checklist.
Why this rule existed — and why it ends now
| Factor | Detail |
|---|---|
| Why LRBAs were allowed (2007) | Gave SMSF trustees flexibility; let Australians invest in property they understood using super savings |
| Why critics opposed them | Created leverage inside a retirement safety net; Murray Inquiry (2014) warned of systemic banking risk if LRBAs became widespread |
| Why they survived until 2026 | Affected fewer than 1% of home loans nationally — limited political footprint |
| Why they end now | Greens demanded the change as a condition of supporting Labor's broader tax package |
What to do now
| Your situation | What to do |
|---|---|
| SMSF holds residential property outright (no loan) | No immediate LRBA action. Keep cost base records, rental history, and property documents in order. |
| SMSF has existing residential LRBA | Confirm bare trust documentation is current. Do not refinance without SMSF legal advice. |
| Planned new residential LRBA | Model alternatives: purchase outside super, commercial LRBA, or REITs inside the fund. |
| Planned commercial LRBA | Unaffected — proceed with licensed SMSF advice and broker credit pre-assessment. |
| Investment property outside SMSF | Budget 2026 CGT and negative gearing changes may affect you directly. |
Broker checklist (credit side only)
When you send an enquiry, include:
- Fund balance + contribution plan (accountant confirms strategy).
- Property type — grandfathered residential, commercial business real property, or residential outright (no loan).
- Existing LRBA? — lender, balance, bare trust names, whether refinance is on the table.
- Liquidity after settlement — modelled in dollars.
- Licensed adviser sign-off — we need this before lodging any new commercial LRBA file.
We provide credit assistance only — not super or financial-product advice ( RG 273 / INFO 274).
FAQs
Can I still buy residential property inside my SMSF without borrowing?
Yes — using the fund's own cash, subject to contribution caps, liquidity buffers, and SIS Act rules (arm's-length acquisition, no related-party occupancy). The ban applies to new borrowings for residential property, not outright purchases.
Does the ban affect my SMSF tax rate?
No change to super tax mechanics: 15% on accumulation-phase earnings, 0% in pension phase (subject to transfer balance cap), 10% effective CGT on long-held assets in accumulation. Grandfathered residential LRBAs retain concessional treatment.
I exchanged on a residential SMSF LRBA before 23 June but have not settled — am I protected?
Contracts already in flight at the time of passage may fall under transitional provisions (timing depends on royal assent and exact legislative wording). Do not assume — get urgent SMSF legal advice on your specific contract dates and bare trust status.
Is SMSF property still attractive after Budget 2026?
The relative case for super property changed twice in six weeks: May 2026 tightened personal investor tax rules; June 2026 closed new residential LRBA leverage. Commercial LRBA and outright residential inside super remain — but the decision still depends on contribution capacity, compliance cost, and hold horizon. Not automatic.
Where do I start for lender paperwork on a commercial LRBA?
Contact us with fund type, balance, property category, and state. Parallel SMSF accountant engagement is non-negotiable.
Related guides
- SMSF property lending — complete service guide
- SMSF property loan — LRBA structure explained
- Budget 2026 — negative gearing & CGT for investors
- Investment property loans (personal)
- Property investor hub
Next step: Send an enquiry · Apply pathway
General information only. SMSF, tax, and credit law change. The 23 June 2026 residential LRBA ban is now law, but detailed application — particularly around refinancing and transitional arrangements — is subject to further ATO guidance. Confirm structure with your SMSF specialist and formal lender documentation before you exchange contracts.
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