Changes to the rules around self-managed super fund borrowing became law on 26 June 2026, and there are some important details for SMSF trustees to be across, particularly those with existing arrangements or who are currently in the process of setting one up.
This article sets out what has changed, what the transitional period means, and what the new rules do and do not cover.
Background on SMSF Borrowing
SMSFs are permitted to borrow in restricted circumstances, including under a limited recourse borrowing arrangement, commonly referred to as an LRBA.
A limited recourse borrowing arrangement, or LRBA, is a structure that allows an SMSF to borrow money to purchase a single asset. The term "limited recourse" refers to the fact that if the fund defaults on the loan, the lender's recourse is limited to the asset purchased with the borrowed funds. The lender cannot claim against the other assets held within the fund.
Under an LRBA, an SMSF can borrow to purchase a single acquirable asset, with the lender's recourse limited to that asset in the event of default.
Until now, there were no specific legislative restrictions on the type of property an SMSF could borrow to acquire. In practice, LRBAs have most commonly been used to purchase property, and that could be any type of real property.
From 26 June 2026, that has changed.
What the New Rules Require
The amendments mean that when an SMSF trustee wishes to borrow to purchase a property under an LRBA, the property must now meet the definition of business real property, commonly referred to as BRP.
This is an important distinction. The BRP definition relates to how a property is used, not how it is zoned or what it was originally built for.
A few practical implications worth understanding:
- A property that is residentially designed could still meet the BRP definition if it is used wholly and exclusively for business purposes. For example, a medical practice operating from a residentially designed terrace dwelling may qualify.
- Conversely, a property that appears commercial in nature may not meet the BRP definition if it does not satisfy the wholly and exclusively used for business purposes requirement. A mixed-use residential and retail property on a single title is one example where this could become complex.
The change has been described in some media coverage as a ban on SMSFs borrowing to purchase residential property. While that broadly reflects the intent, the use of the BRP definition makes the picture more nuanced than a straightforward ban.
Whether a specific property qualifies will depend on the facts of each case, and the answer is not always obvious.
The Transitional Period
The legislation includes a 45-day transitional period, which ends on 10 August 2026.
This transitional period may allow arrangements that are currently being implemented on non-BRP assets to remain permissible under the new rules, even where settlement occurs after 10 August 2026, provided the arrangement to purchase the property was entered into on or before that date.
If you are currently in the process of implementing an LRBA over a non-BRP asset, the transitional rules may be relevant to your situation. Given the complexity involved, seeking specialist SMSF legal advice before 10 August 2026 is strongly recommended to ensure your arrangement meets the requirements.
What Happens to Existing Arrangements
Existing LRBAs over non-BRP assets are not affected by the new rules and can continue to operate as they currently do.
Existing arrangements can also be refinanced, subject to lender availability and approval.
If you have an existing LRBA in place over a residential or non-BRP property, you do not need to unwind it as a result of these changes.
What This Means Going Forward
For SMSF trustees considering a new borrowing arrangement from this point forward, the key question is whether the property intended for purchase meets the BRP definition. That assessment will need to be made carefully and on the specific facts of each arrangement.
Given the nuances in the BRP definition, particularly around mixed-use properties and residentially designed buildings used for business purposes, this is not always a straightforward determination.
We recommend that SMSF trustees entering into new LRBAs from here seek advice from specialist legal and financial advisers before proceeding.
For a broader overview of what has changed for SMSFs at the start of 2026-27, including updated contribution caps, pension obligations, and Division 296 transitional rules, our earlier blog SMSF Trustees: Key Steps to Take at the Start of 2026-27 covers the full picture.
Questions About Your SMSF Borrowing Arrangements?
If you have questions about how these changes affect your SMSF, whether you have an existing arrangement, are currently implementing one, or are considering a new LRBA, we are happy to talk through your situation. Our team works closely with specialist SMSF advisers and can help you understand what the new rules mean for your fund. You can also explore our SMSF advisory services for more on how we support self-managed super fund trustees.
Book a conversation with the Trekk Advisory team and let's work out the right next step for your fund.
Trekk Advisory provides accountant-led tax, bookkeeping, and advisory services for Australian business owners. This article is general in nature and does not constitute personal advice. Please speak with a qualified adviser regarding your specific circumstances.
-1.png)