The federal government is moving ahead with an SMSF property borrowing ban for residential property, after striking a deal with the Greens as part of its broader tax reform package.
The legislation has passed the Senate and is awaiting Royal Assent, with the new rules expected to take effect 45 days later. Existing borrowing arrangements will not be affected.
If you’ve used your super to invest in property or were considering buying property with an SMSF, it’s worth understanding exactly what the changes mean and whether there’s still time to complete a purchase that’s already underway.
The legislation will prevent self-managed super funds from entering into new limited recourse borrowing arrangements (LRBAs) to purchase SMSF residential property. An LRBA is a type of loan that allows an SMSF to borrow to buy a property, with the lender’s claim limited to that specific asset if the loan defaults.
The reforms do not ban SMSFs from investing in residential property altogether. Instead, they remove the ability to borrow for future residential purchases. SMSFs will still be able to purchase residential property outright using existing fund assets, while borrowing for commercial property is expected to remain available.
To put the change in perspective, new SMSF residential borrowing accounts for less than 1% of total residential property borrowing in Australia. Even so, if borrowing through your fund was part of your retirement plan, the impact is very real.
SMSF commercial property holdings are already almost double residential holdings, and that gap may widen once the ban commences.
Concerns about super funds borrowing to invest are not new, and the risks have been raised in several government reviews over the past decade.
The Budget’s wider changes to negative gearing and capital gains tax brought the issue back into focus, and the ban was ultimately included as part of the government’s agreement with the Greens to pass its tax legislation through the Senate.
The impact depends on your circumstances. Trustees who already have an SMSF investment property financed through an LRBA won’t need to make any immediate changes. The government has confirmed existing arrangements will be grandfathered, meaning they can continue under the current rules.
Anyone currently in the process of purchasing a residential property through their fund should pay close attention to the transition period. Contracts exchanged before the new rules commence are expected to remain protected, with a 45-day window after Royal Assent allowing transactions already underway to proceed. That would likely put the cut-off around mid-August 2026. In practice, that window will really only suit buyers who are already well advanced, with finance arranged and a suitable property identified.
People who were planning to rely on SMSF loans to buy residential property in the future will need to consider other strategies. Depending on your circumstances, that could include purchasing residential property outright within the fund or exploring commercial property opportunities where borrowing is expected to remain available. Every fund is different, so the right path will depend on your balance, goals and timeframe.
| Your situation | What it means |
| Existing residential LRBA | No change. Existing arrangements are grandfathered |
| Residential purchase already underway | 45-day transition period may apply if contracts are exchanged before commencement |
| Planning a future residential SMSF purchase using borrowing | New residential LRBAs will no longer be available |
| Buying residential property outright through an SMSF | Still permitted |
| Commercial property borrowing through an SMSF | Expected to remain available |
Anyone with an existing LRBA should avoid refinancing or restructuring their loan without obtaining specialist advice, as changes to a grandfathered arrangement could have unintended consequences.
Trustees who were already planning a residential purchase should speak to their broker and adviser promptly about whether contracts can be exchanged before the commencement date. Acting quickly doesn’t mean rushing into the wrong property, though. Investment decisions should continue to be based on sound financial strategy rather than an approaching legislative deadline.
The reforms also present a good opportunity to review your broader self-managed super fund property strategy. While one pathway may be closing, other investment options may still align with your long-term retirement objectives.
The changes add another layer of complexity to SMSF lending and property investing. Whether you’re already borrowing through your fund, hoping to complete a purchase before the new rules commence or reviewing alternative finance options, obtaining advice early can help you make informed decisions.
Thinking about buying property with an SMSF or reviewing your existing SMSF lending strategy? Speak to the expert team at Shore Financial. We’ll help you understand your finance options, explain how the changes may affect your plans and develop a lending strategy that aligns with your long-term investment goals. Call us on 1300 416 700, email info@shorefinancial.com.au or fill in this online form.
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