The End of SMSF Residential Borrowing?
Bought to by Mitchell Ethell - Accountant
What the August 2026 Changes Mean for Your SMSF.
Mark the date, 10th of August 2026. This is the date that the new rules that dictate how SMSFs can invest in property come into effect. Don’t worry, we’ve done the research so that you can focus on what matters most, enjoying your retirement.
How SMSFs Borrowed Before These New Rules
Previously, SMSFs were allowed to take out loans to purchase investments using a Limited Recourse Borrowing Arrangement (LRBA).
By using a LRBA, if your fund defaulted on their loan, then the lender is strictly limited to the specific investment purchased through that loan. This has always been an enticing borrowing strategy for many funds as this protects any assets held under the fund that were not acquired through an LRBA. This meant that many funds would utilise a LRBA to buy both residential and commercial investment properties.
Changes to Residential Borrowing
New laws have just passed which means from 10 August 2026, SMSFs generally will no longer be allowed to enter into new LRBAs to purchase residential investment properties.
Moving forward, if an SMSF wishes to use a LRBA to borrow funds to purchase an investment property, the property is strictly limited to just “business real property”. Regardless of if your lender is a major bank, non-bank lender, or a related-party loan, this new rule still applies.
What Isn’t Changing
There is still some good news! LRBAs are not disappearing entirely.
Grandfathering – If your fund already has a LRBA in place for a residential property prior to 10 August 2026, then this arrangement is protected under the grandfathering provisions. Better yet, under these grandfathering provisions, your fund can even continue to refinance these existing arrangements provided that you meet the specific requirements.
In-progress Contracts – If you are currently undergoing a contract to purchase a residential investment property and have exchanged a binding contract before 10 August 2026, then you are protected. This still applies even if your settlement date occurs after the cutoff date.
Cash is King – Now, just because these new laws prevent SMSFs from borrowing funds to purchase residential investment properties after 10 August 2026, this doesn’t mean goodbye to residential investment properties all together. In fact, a SMSF can still purchase a residential investment property, as long as they do so without borrowing (Cash Purchase).
Business Real Property
LRBAs will still remain the useful tool that they are today, but only for purchasing business real property.
To qualify for LRBAs, the property being purchased must be used wholly and exclusively for a business, regardless of its council zoning. Therefore, a dedicated commercial space is acceptable, but if your property is a mix of business and private residence, then this generally won’t be eligible. There are some exceptions to this rule if dealing with farms that meet specific criteria.
It is important to keep in mind that the business must be used for business on the day that you sign the loan and it must stay that way until the loan is fully paid off. If for any reason the property changes from 100% business use, then your SMSF will be in breach of the rules and will face severe penalties.
Let’s Chat
As always, with new laws comes new strategies, but borrowing to invest in property certainly has not disappeared. With proper structuring, accurate asset classification, and strategic planning, your SMSF can continue to support and secure a rewarding retirement.
Whether you’re wondering how these new rules will affect your current SMSF, looking to refinance an existing arrangement, or simply looking to explore new commercial property investments, then come speak with our team here at Fenwick Collective.