In short
Schedule 5 of the Treasury Laws Amendment (Tax Reform No. 1) Act 2026 commenced on 10 August 2026 and is now in force. For an SMSF property loan entered into from that date, the property generally must be business real property. The test turns on how the property is actually used, not whether the listing describes it as residential or commercial, and that use must continue while the borrowing remains in place.
Earlier loans, qualifying pre-10 August arrangements and qualifying refinances may remain protected. Before exchange, the important questions are which side of the 10 August commencement date your transaction falls on, whether the property passes the use test and whether the NSW purchasing structure is already in place.
Can your SMSF borrow for this property?
An SMSF generally cannot borrow. One exception allows a fund to acquire an asset under a structure commonly called a limited recourse borrowing arrangement, or LRBA.
Under an LRBA, the lender’s recourse against the fund trustee must be limited to rights relating to the asset bought with the borrowed money. Other statutory conditions also apply.
For an LRBA involving real property entered into from 10 August 2026, Schedule 5 now applies and requires the property to be business real property. If the property does not meet that definition, the fund cannot rely on the LRBA exception for the purchase.
Why does the property’s actual use matter?
Business real property is generally land used wholly and exclusively in one or more businesses. The label on the sale advertisement, the zoning and the appearance of the building do not decide the question by themselves.
For example, a house used entirely as a medical practice may qualify even though it looks residential. A shop with a privately occupied flat above may not qualify because part of the property is being used privately.
The words “wholly and exclusively” do not mean that every square metre must always be in active use. Unused areas, minor or incidental non-business use and the special rule for certain primary-production property can affect the result. Vacant land, farms and mixed-use properties therefore need a factual assessment rather than a conclusion based on the property type alone.
That is why the present lease, occupancy arrangements and intended use matter more than the agent’s description of the property as “commercial”.
What happens if the use changes while the loan remains?
Passing the test when the property is bought is not the end of the issue. The property must remain business real property while the relevant borrowing is maintained.
A later change of tenant or use can therefore become an SMSF compliance question, not merely a leasing decision. If part of the premises begins to be occupied privately, the loan may cease to fit within the borrowing exception and the fund may breach the general prohibition on SMSF borrowing.
A temporary vacancy between business tenants does not automatically produce that result. Evidence that the property is still being held and actively marketed for business use can matter. The position may change if the business use has been abandoned or private occupation is allowed.
Before changing tenants, permitting a new use or redeveloping the property, consider the SMSF consequences while there is still time to structure the change. By the time the issue appears in the fund’s audit, it may be much harder to correct.
Is an earlier contract or loan protected?
The 10 August commencement date matters, but so does what was actually entered into before that date.
Schedule 5 is now in force and applies to arrangements entered into from 10 August 2026. Subject to the other SMSF borrowing requirements, protection may remain to the extent that a later borrowing:
- maintains or refinances borrowing under a pre-10 August arrangement; or
- funds an acquisition made under a qualifying arrangement entered into before 10 August.
A property purchase contract entered into before 10 August may provide the relevant earlier arrangement even if settlement occurs later. A finance application, pre-approval, expression of interest or deposit payment may not be enough.
The signed documents need to be considered as a whole. Replacing the contract, changing the property or materially changing the transaction may alter which part of the arrangement remains protected.
What changes when you refinance?
Replacing a protected SMSF loan may also remain protected, but only to the extent that the new facility maintains or refinances the earlier borrowing.
For example, refinancing the outstanding balance with another lender is different from using the new facility to borrow additional money for renovations, another asset or an unrelated purpose. The refinance label does not extend the transition protection to money borrowed for something new.
The old and new facilities should therefore be compared by amount, parties, secured property and purpose before the replacement loan becomes binding.
What must be in place before a NSW contract is exchanged?
In NSW, the purchaser named when contracts are exchanged matters because the section 62B duty concession depends on the fund and holding structure being in place in the required sequence.
Under a typical LRBA, a separate company holds legal title while the loan is repaid. That company is commonly called the custodian or bare trustee.
To seek the section 62B concession, the SMSF must exist on or before the contract date and the custodian or bare trustee identified in the holding-trust documents must be named as purchaser. The fund, purchaser and property also need to be described consistently throughout the documents.
Other statutory conditions include the purchase consideration being provided by the SMSF trustee and the relevant duty requirements on the acquisition being met. If the arrangement does not qualify, the declaration of trust may attract duty based on the property’s value rather than the fixed $750 duty. Depending on how the transaction was documented, more than one dutiable transaction can arise.
This is not usually something that can be safely repaired by inserting a different purchaser after exchange. The fund, custodian and exact purchaser name need to be settled before the contract is entered into.
What has not changed?
The amendment does not prevent an SMSF from buying residential property without borrowing, provided the acquisition complies with the other superannuation rules. It also does not force a fund to sell residential property it already owns.
Borrowing arrangements for assets that are not real property are not changed by this particular amendment. The fund must still comply with the remaining SMSF rules, including dealing on proper commercial terms and using fund assets only for permitted superannuation purposes.
Which documents will answer these questions?
The documents should let you establish four things: how the property is used, when the relevant arrangement was entered into, whether the holding structure is correct and what the loan will actually fund.
- For property use: leases, occupancy agreements and evidence of the activities conducted on the land.
- For timing: the signed purchase contract, earlier agreements and existing loan documents.
- For structure: the SMSF deed, custodian company records and proposed holding-trust document.
- For finance: the approval, facility agreement and a clear breakdown of any additional borrowing.
An unresolved purchaser name, material private use or a refinance containing extra funds should be dealt with before exchange, not left for the fund’s next audit.
Our guide to buying a property in NSW explains the wider contract and settlement process. Where land is being acquired for business use, our commercial and rural property services cover the property transaction itself.
Primary sources and update note
Law and guidance checked 27 August 2026.
- Treasury Laws Amendment (Tax Reform No. 1) Act 2026, Schedule 5
- Superannuation Industry (Supervision) Act 1993, sections 66 and 67A
- ATO SMSFR 2009/1: business real property
- ATO SMSFR 2012/1: SMSF borrowing concepts
- Duties Act 1997 (NSW), section 62B
- Revenue NSW: assessing duty on a declaration of trust by a custodian
Schedule 5 of the Treasury Laws Amendment (Tax Reform No. 1) Act 2026 commenced on 10 August 2026 and is now in force. The Federal Register’s latest consolidated SIS Act compilation currently covers the period to 9 August 2026; Schedule 5 of the amending Act is the authoritative source for the in-force borrowing rule.
If you are considering an SMSF property purchase, contact Biz Lawyers & Advisory or call 1800 893 836 before signing or changing the transaction documents.
This article provides general information only. It is not legal, financial, taxation, investment or credit advice, and your position depends on your fund, property use and signed documents.
