From 10 August 2026, the rules around borrowing inside a self-managed superannuation fund (SMSF) change significantly. If you are an SMSF trustee, investor, or adviser, understanding exactly what has changed, and what has not, is essential before making any property future decision.

What is a self-managed superannuation fund 

A self-managed superannuation fund is a private super fund where the members take on the responsibility of managing the fund themselves. Unlike a traditional industry or retail super fund where professional fund managers make investment decisions on members' behalf, an SMSF puts the members in the driver's seat. They decide how the fund's money is invested, whether that is in shares, cash, managed funds, property, or a combination of these. In most cases, the members are also the trustees of the fund, which means they are personally responsible for ensuring it complies with superannuation and tax laws. That added control comes with added responsibility, including ongoing administration and compliance obligations.

What is a limited recourse borrowing arrangement (LRBA)

A LRBA is a specific type of borrowing structure that superannuation law has historically allowed SMSFs to use when purchasing an asset such as a property. Under this structure, the property is held by a separate entity, known as a custodian, on behalf of the SMSF until the loan is fully repaid. The "limited recourse" element is an important protection: if the SMSF were to default on the loan, the lender's ability to recover is generally limited to the property that was purchased with the borrowed funds. The fund's other assets are quarantined and cannot be pursued by the lender.

What has actually changed

From 10 August 2026, SMSFs can no longer enter into a new Limited Recourse Borrowing Arrangement (LRBA) to purchase residential property. 

From 10 August 2026, an SMSF may only borrow funds under a LRBA to acquire property that qualifies as “business real property”, being real estate used wholly and exclusively in carrying on a business at the time of purchase.

Careful analysis of whether a property genuinely meets the business real property test is essential, it cannot be assumed.

What has not changed

The reforms do not:

• abolish SMSFs;

• prevent an SMSF from purchasing residential property outright without borrowing;

• force the sale of property already held through an existing LRBA;

• affect the other exceptions to general prohibitions on borrowing by an SMSF; or

• affect borrowing for eligible business real property, which remains available.

What about existing arrangements

Existing residential LRBA’s entered into before 10 August 2026 are grandfathered, meaning trustees are not required to sell properties simply because the law has changed. Refinancing is also recognised under the legislation but is subject to conditions. Seeking professional advice before restructuring or refinancing any existing LRBA is strongly recommended.

What should you do now

These changes mark one of the most significant shifts in SMSF property investment in more than a decade. 

Getting the detail right from the beginning is far less costly than correcting a structural mistake after the fact.

If you are an SMSF trustee weighing up a property decision or want to understand how these changes affect your fund, contact our experienced team to discuss your situation (02) 6331 2911 or email solicitors@kennyspring.com.au.