Parliament has now passed legislation that will prohibit future limited recourse borrowing arrangements (LRBAs) for residential property by self managed superannuation funds (SMSFs).
The change formed part of the Government’s broader tax reform package and followed agreement with the Greens to secure passage of the first tranche of tax reform legislation that was announced in the 2027 Federal Budget.
Superannuation funds are generally prohibited from borrowing, but SMSFs have been able to borrow in limited circumstances using a limited recourse borrowing arrangement (LRBA). These arrangements have typically been used to acquire a single asset, such as residential or commercial property, with the lender’s recourse generally limited to that asset.
Under the legislation now passed, new LRBAs for residential property are banned going forward. Existing SMSF borrowing arrangements will not be affected, and a transitional period applies to allow arrangements already in train to be finalised.
A transitional period of 45 days will apply from the date of Royal Assent. This means that the ban commences on the 45th day after the amending Act receives Royal Assent. Any existing LRBAs involving residential property will be able to continue, as will arrangements where the acquisition of a residential property using an LRBA is entered into during the transitional period (including transactions where settlement occurs after the transitional period has ended). During this critical window it will be essential to ensure that contracts are in place, and that all relevant entities, including holding trusts, are correctly established.
For clients who were considering purchasing residential property through an SMSF using borrowings, the position is now urgent. With the ban commencing 45 days after Royal Assent, there is only a limited transition window for transactions that are already well progressed. Clients should not assume that a planned purchase will be protected without confirming the detail, and without ensuring that contracts and holding trust structures are correctly in place before the window closes.
It is deeply disappointing that superannuation, and specifically SMSFs, have once again been used as a political bargaining chip. Despite repeated assurances that there were going to be no changes to superannuation, this rushed concession to gain the support of the Greens has now been legislated, further eroding confidence in the system. LRBAs have been scrutinised in-depth repeatedly with no basis found to remove them, so it seems counterintuitive to legislate this on a whim with the loose justification of “closing a loophole” and “stopping property spruikers”. As the SMSF Association observed, this is a significant change to the SMSF investment landscape that has been progressed through a late-stage amendment, without consultation or an evidence-based review process.
However, this does not mean that SMSFs can no longer invest in property, just that they cannot borrow to invest in residential property. Property investment via an SMSF remains a viable strategy depending on the members’ objectives, risk profile, retirement timeframe, contribution capacity, existing fund balance and broader estate planning position. Trustees should always seek advice before entering into or restructuring any SMSF property arrangement.
If you have an existing SMSF property loan, or if you are currently considering an SMSF property purchase, now is the time to review your position, particularly given the 45-day commencement window. We can help you understand how the changes affect your fund, whether an in-progress purchase can still proceed within the transitional period, whether your current strategy remains appropriate, and what alternatives may be available. Contact our SMSF expert, Clive Todd via the form below or on 07 3218 3900.
Update: The Treasury Laws Amendment (Tax Reform No. 1) Bill 2026, which included amendments to ban the use of LRBAs for the purchase of residential properties, received Royal Assent on Friday 26 June 2026. This means that the ban will take effect from Monday 10 August 2026.
This article is general information only and does not take into account your personal objectives, financial situation or needs. You should seek professional advice before making any decision about your SMSF or investment strategy.
