SMSF limited recourse borrowing from 10 August 2026

What changed on 10 August 2026

A limited recourse borrowing arrangement is the only route by which a self-managed super fund can borrow to buy property, and since 10 August 2026 a new LRBA used to purchase real property can only acquire business real property. New ordinary residential LRBAs are closed. The change arrived through Schedule 5 of the Treasury Laws Amendment (Tax Reform No. 1) Act 2026, which received Royal Assent on 26 June 2026 and commenced 45 days later, and the ATO published its guidance on 28 July 2026.

LRBAs are not banned, and the ATO says so in those words. A fund can still borrow, or maintain a borrowing, to acquire an asset — what has narrowed is the category of real property it may acquire. Arrangements over non-real-property assets that already met the rules are unaffected, and a fund can still buy residential property outright with its own cash where the other superannuation rules are satisfied. It simply cannot finance that purchase with a loan.

One point catches anyone assuming a workaround exists: the restriction applies regardless of who the lender is. A bank, a non-bank lender and a related-party loan from a member are treated identically. The ATO is explicit that the identity of the lender does not determine whether the real property has to be business real property.

What is protected, and what is not

An LRBA entered into before 10 August 2026 is protected. The fund can keep it and can refinance it, and the ATO defines refinancing as entering a new loan contract for the same asset with either the same lender or a new one. Where the financed asset is real property that is not business real property, it does not have to become business real property later.

A binding contract exchanged before 10 August 2026 is also protected, even where finance is approved and settlement occurs afterwards. The ATO’s published example is an off-the-plan contract exchanged before commencement, financed after it, and settled twelve months later. Ordinary variations to the contract do not disturb that, but a contract changed so significantly that its fundamental terms no longer exist may be treated as a new arrangement.

What is not protected is substitution. Swapping the underlying residential property for a different one is a new arrangement, and a new arrangement over ordinary residential property fails. A protected LRBA is therefore tied to the specific asset it financed, which is a live constraint on any fund contemplating selling one unit and buying another inside the same borrowing.

Business real property is a legal test, not a label

Business real property broadly means land and buildings used wholly and exclusively in one or more businesses. Retail shopfronts, warehouses, industrial units, medical and professional suites and offices in use are the ordinary examples. A house does not become business real property because a tenant pays rent to live in it, and the ATO’s detailed view sits in ruling SMSFR 2009/1 rather than in any lender’s brochure.

There is one carve-out worth knowing precisely. Property used in a primary production business that contains a dwelling for private or domestic purposes can still qualify, provided the dwelling sits within an area of no more than two hectares and the main use of the whole property is not domestic or private. That is a narrow test with genuine farm files behind it, not a general opening for rural residential.

The asset must be business real property at the moment the LRBA is entered into and for the entire life of the loan. If it stops being business real property, the fund has failed to maintain the arrangement, has breached the prohibition on borrowing, and compliance action may follow. Looking for a replacement commercial tenant does not break the test. Abandoning plans to lease the property commercially does.

What limited recourse does and does not protect

The loan is limited recourse in the sense that the lender’s rights on default are confined to the single acquirable asset, held on bare trust by a custodian, rather than reaching the fund’s other investments. That protection is real and it is the reason the structure exists. It is not the same thing as no risk.

Lenders in this market routinely require personal guarantees from members, so a default can reach past the fund into personal assets. The single acquirable asset rule also limits what can be done to the property while it is geared — improvements are tightly constrained, and a change that turns the asset into a different asset can unwind the arrangement. Those are questions for an SMSF lawyer and adviser, not for a broker.

What lenders test on a commercial SMSF file

The panel is narrower than it once was. Major banks largely exited residential SMSF lending years ago, and the active lane for new real-property work is commercial specialists and selected business-bank channels. Pricing generally sits above retail home loan rates, though a commercial major-bank channel can be sharper than a non-bank SMSF specialist where the file fits its policy cleanly.

Expect testing on fund size and contribution runway — combined member balances in the region of $200,000 to $250,000 are a common practical screen, lender-specific rather than legislated — post-settlement liquidity once deposit, duty and costs are paid, the lease and evidence of business use, rent shading that often falls in the 60 to 80 per cent range, and correct sequencing of the bare trust and custodian documents for the relevant state.

Timeframes run longer than residential. Eight to twelve weeks is a realistic allowance for an SMSF refinance, and the order of operations matters: do not commission bare trust or conveyancing work that creates sunk cost before you know a lender will look at the deal.

Where these files go wrong

The most common failure is sequence — paying a non-refundable deposit or having deeds drawn before anyone has confirmed the property qualifies as business real property and that a lender will fund it. The second is assuming a loan from a member escapes the rules, which it does not. The third is treating a protected residential LRBA as though it were portable to another property.

The fourth is establishing a fund mainly to gear a house. That pathway closed on 10 August 2026, and a modest balance geared into residential property inside super is not a strategy anyone can execute for you now, however it was described before June 2026.

Where credit work stops and SMSF advice starts

Azure Home Loans works the credit side: lender appetite, structure sequencing, serviceability inside the fund, and the documentation a commercial LRBA needs. Fund strategy, compliance with the Superannuation Industry (Supervision) Act, the investment strategy update, the audit and the tax consequences sit with your licensed SMSF adviser, accountant and auditor. That division is not a formality — it is where the liability sits.

This page is general information for Australian readers as at September 2026, not financial, tax, legal or credit advice about your fund. Verify the operative position on ato.gov.au before you exchange contracts or commit non-refundable money, and remember that legal permission to borrow is a separate question from a lender agreeing to lend.