SMSF Borrowing for Residential Property Has Changed: What the New LRBA Rules Mean

The rules for SMSF property borrowing changed on 10 August 2026.

For most trustees, the practical effect is clear. A new limited recourse borrowing arrangement, or LRBA, can no longer be used to buy a standard residential investment property.

But an SMSF can still own residential property using its own funds, and LRBAs remain available for property that qualifies as business real property.

For business owners considering whether their SMSF could buy business premises, that distinction matters.

What changed for SMSF property borrowing?

Since 10 August 2026, real property acquired through a new LRBA must qualify as business real property.

An SMSF can still purchase residential property using money already available within the fund, provided the investment meets the usual SMSF requirements. What has changed is the ability to borrow through a new LRBA to purchase standard residential property.

For trustees who had planned to use borrowing as part of a residential property strategy, that may mean reconsidering the type of property being purchased or whether the investment still suits the fund.

What about an existing residential property LRBA?

The changes didn’t automatically end existing residential property LRBAs.

Transitional provisions apply to some arrangements entered into before 10 August 2026, qualifying refinancing of earlier borrowings and certain purchases already underway before the new rules commenced.

If your fund had a residential property purchase, loan or refinancing underway around 10 August, the actual dates and documentation need to be reviewed rather than assuming the arrangement has been caught by the new rules.

Business real property can still qualify for an LRBA

An SMSF can still potentially use an LRBA to acquire property that qualifies as business real property.

Broadly, this means property used wholly and exclusively in one or more businesses, although the technical definition and exceptions need to be considered for the particular property.

For example, a business owner leasing a factory, warehouse, office or other commercial premises may consider whether their SMSF could purchase suitable premises and lease them to the operating business.

Where the property qualifies, and the other SMSF requirements are met, an LRBA may still be available to help fund the purchase.

But whether it is the right strategy depends on more than whether the SMSF is technically allowed to do it.

An LRBA can also restrict what happens to the property

An LRBA can affect more than how the property is purchased. It can also restrict what can be done with the asset while the borrowing arrangement is in place.

Borrowed funds can be used for repairs and maintenance, but not for improvements. SMSF money from other sources can potentially fund improvements, provided the changes do not fundamentally alter the property so that it becomes a different asset.

Purchasing vacant land using an LRBA is effectively impossible within an SMSF if you plan to construct a building on it, because this fundamentally changes the asset that was originally acquired.  Substantial alterations can create similar issues if they change the property’s fundamental character.

If significant renovations, extensions, or redevelopment may be required, consider this before entering into the LRBA.

Buying business premises through an SMSF needs to work for both the fund and the business

A premises purchase can look attractive when a business is already paying substantial rent, but the numbers still need to work for both the SMSF and the operating business.

The SMSF needs sufficient capital to support the purchase and borrowing costs without becoming too heavily concentrated in one asset. Finance must be available on workable terms, the purchase must fit the fund’s investment strategy, and any lease between the SMSF and the related business must be on commercial terms.

The business also needs to be able to comfortably meet the rent and other commitments over the longer term.

It is also important to consider what happens if the business grows, relocates, is sold or eventually passes to the next generation.

Consider these issues together before signing a property contract.

Residential property has not disappeared from SMSFs

The new rules are about borrowing, not whether an SMSF can own residential property.

An SMSF can still invest in residential property using its own funds, subject to the normal SMSF rules around investment strategy, related parties, personal use and the sole purpose of the fund.

The change doesn’t mean SMSFs can no longer own residential property. It means they can no longer use a new LRBA to borrow for a standard residential property purchase.

What should SMSF trustees and business owners do now?

If your SMSF already has a residential property LRBA, the August changes do not automatically mean the arrangement needs to be unwound.

If you had a purchase or refinancing underway before 10 August, the transitional provisions need to be considered against the actual arrangement.

For new purchases, business owners considering buying their own premises through an SMSF should look at the fund, business cash flow, borrowing structure, plans for the property and longer-term goals together before deciding how to proceed.

Sharp Accounting’s SMSF specialist, Julian, can help you work through whether an SMSF property purchase is possible and whether it makes sense for your wider position.

If buying business premises through your SMSF is something you are considering, speak to Julian before signing a contract or committing to finance.