SMSF property borrowing changes from 10 August 2026: what the Act changes—and what it does not

Current at 16 July 2026.

What is changing?

Schedule 5 of the Treasury Laws Amendment (Tax Reform No. 1) Act 2026 changes one of the conditions for a limited-recourse borrowing arrangement, commonly called an LRBA.

The Superannuation Industry (Supervision) Act 1993 (SIS Act) generally prohibits a regulated superannuation fund trustee from borrowing money or maintaining an existing borrowing. Section 67A provides an exception where a borrowing arrangement satisfies its detailed requirements.

Under the current section 67A, borrowed money may be applied to acquire a single acquirable asset and specified associated expenses. Among other requirements:

• the asset must be held on trust so that the fund trustee acquires a beneficial interest;
• the fund trustee must have a right to acquire legal ownership after making one or more payments;
• rights arising from default must be limited to rights relating to the asset; and
• the asset generally must not be subject to another charge.

The current definition of an "acquirable asset" in subsection 67A(2) requires that the asset not be money and that its acquisition by the trustee not be prohibited by the SIS Act or another law.

From 10 August 2026, Schedule 5 adds another requirement: for an asset that is real property, the asset must be business real property within the meaning of section 66 of the SIS Act.

The new condition applies only as provided by Schedule 5's application and transition rules. It also operates alongside—not in place of—the existing requirements of sections 67A and 67B and the wider superannuation-law rules.

What does "business real property" mean?

Section 66 defines business real property, in relation to an entity, by reference to specified interests in real property where the property is used wholly and exclusively in one or more businesses. The definition excludes an interest held as beneficiary of a trust estate and contains particular treatment for certain primary-production property.

This is a statutory classification. It is not necessarily answered by:

• whether an agent calls the property "commercial";
• whether a lender treats the loan as commercial finance;
• the property's zoning alone;
• whether a building looks residential or non-residential; or
• the identity of the tenant alone.

The property's use, the relevant business and the nature of the interest must be examined. The ATO discusses the definition and examples in SMSFR 2009/1.

Whether a particular property is business real property cannot be determined from its description alone. Mixed uses, short-term accommodation, serviced accommodation, vacant property, redevelopment, primary-production land with a dwelling and changes in use require specific analysis. General information about commercial and rural property transactions is available on our commercial and rural properties page, but a property transaction description does not determine the section 66 test.

The old and new positions in practical terms

Before 10 August 2026

A qualifying LRBA can fall within the section 67A exception without satisfying the new paragraph 67A(2)(c), because that paragraph has not yet commenced.

That does not mean every proposed property borrowing is lawful. The borrowing and acquisition must still satisfy all existing LRBA conditions and other applicable duties and investment restrictions.

From 10 August 2026

For an affected arrangement entered into on or after commencement, real property must be business real property to satisfy the amended "acquirable asset" definition.

The change is therefore more precise than a general "SMSF residential-property ban." Its legal operation concerns the use of affected borrowing arrangements to acquire real property that does not satisfy the business-real-property test.

It should not be assumed that every residential property necessarily fails the test or that every property described as commercial necessarily passes it. Section 66 requires analysis of the particular interest and use.

What the amendment changes

Subject to its transition provisions, Schedule 5:

• adds a business-real-property condition for real property acquired through affected LRBAs;
• changes the section 67A eligibility analysis for affected arrangements entered into on or after 10 August 2026;
• makes the property's statutory character and use central to that analysis; and
• requires the new condition to be considered together with all pre-existing LRBA requirements.

The amendment is directed to real property. It does not replace the existing rules for other kinds of acquirable assets.

What the amendment does not change

Schedule 5 does not, by itself:

• prohibit an SMSF from owning residential property;
• require every SMSF to sell residential property it already owns;
• retrospectively invalidate every residential-property LRBA;
• make all property described as commercial eligible for an LRBA;
• displace the sole-purpose, related-party, in-house-asset, arm's-length or investment-strategy rules;
• remove the existing single-acquirable-asset, holding-trust or limited-recourse requirements;
• determine whether a property transaction is suitable for a fund or its members;
• approve a loan product, lender or investment strategy; or
• determine the tax consequences of a particular transaction.

An SMSF's acquisition or continued ownership of property without borrowing remains subject to the wider superannuation-law framework. For example, section 66 generally restricts acquiring assets from related parties, subject to specified exceptions, and other provisions regulate present-day benefits, related-party dealings and in-house assets.

Transition treatment

Schedule 5 applies the amendment to arrangements entered into on or after commencement under which money is borrowed, or borrowings are maintained, for acquiring assets.

It then provides two qualifications. The amendment does not apply, to the relevant extent, where:

1. the arrangement maintains or refinances a borrowing under another arrangement entered into before commencement; or
2. the asset is acquired under an acquisition arrangement entered into before commencement.

The statutory note confirms that the following continue to be covered by the subsection 67A(1) exception, provided its other requirements are satisfied:

• a borrowing arrangement entered into before commencement;
• a refinancing arrangement covered by the first qualification; and
• a borrowing arrangement where the related asset is acquired under an arrangement entered into before commencement, even if settlement happens after commencement.

These provisions are more accurately described as application and transition rules than as a universal "grandfathering" rule.

Transition scenarios

1. Borrowing arrangement entered into before 10 August 2026

A borrowing arrangement entered into before commencement is outside the principal application rule for the new condition.

That does not retrospectively cure any existing defect. The arrangement must still satisfy the law that otherwise applies to it. The date on which the borrowing arrangement was legally entered into, and whether subsequent variations, replacements or restructures constitute another arrangement, require review of the actual documents.

2. Refinancing a pre-commencement borrowing

Schedule 5 expressly addresses an arrangement for maintaining or refinancing a borrowing under another arrangement entered into before commencement.

A qualifying refinance is not subject to the new business-real-property condition to the extent that the statutory exception applies. The refinancing arrangement must nevertheless continue to meet the other requirements of section 67A.

The original borrowing, proposed refinance, amount, asset, parties, security, recourse terms and any additional purpose need to be reviewed. It should not be assumed that every refinance, redraw, extension, variation, capitalisation, consolidation or replacement loan is protected.

3. Acquisition arrangement entered into before commencement, with settlement later

The second exception addresses an asset acquired under an arrangement entered into before commencement. The statutory note expressly contemplates settlement taking place after commencement.

A post-commencement borrowing may therefore fall within this treatment where the relevant acquisition occurs under a pre-commencement acquisition arrangement and all other requirements are met.

A sale contract date may be important, but the Act does not say that every document called a contract conclusively determines the issue. Conditions, nominations, substitutions, rescission, novation, changes to the purchaser or asset, and the complete transaction documents may affect the analysis. Our buying a property page describes general contract-review and settlement issues, which are separate from deciding whether Schedule 5's transition rule applies.

4. Loan application or pre-approval before commencement

A finance application, indicative approval or loan pre-approval is not necessarily an arrangement under which money is borrowed, or an arrangement under which the asset is acquired.

Whether any relevant borrowing or acquisition arrangement was actually entered into before commencement must be determined from the facts. Transition treatment should not be inferred from preliminary finance correspondence alone.

5. A post-commencement arrangement with both refinancing and another purpose

The exceptions are expressed as applying "to the extent" their conditions are met. A transaction combining the maintenance or refinancing of a pre-commencement borrowing with additional money, another asset or a materially different purpose requires close analysis.

No conclusion should be drawn about a mixed-purpose, increased or restructured facility without reviewing the documents.

Why simplified transition descriptions can mislead

Statements such as "existing LRBAs are grandfathered," "exchange before 10 August is enough" or "refinancing remains permitted" may be useful summaries, but they are not complete legal tests.

They can omit questions including:

• which borrowing arrangement was entered into, and when;
• which arrangement governs the acquisition;
• whether an arrangement is conditional, replaced or varied;
• whether the same asset and borrowing are being maintained;
• whether new money or another purpose is involved;
• whether lender recourse remains limited as section 67A requires; and
• whether every other superannuation-law requirement continues to be met.

The actual documents and sequence of events must be considered.

Neutral document and issue checklist

For a proposed, existing or transitional arrangement, the relevant records may include:

• the executed contract or other acquisition documents;
• the date and terms of the borrowing arrangement;
• the holding-trust deed and trustee details;
• finance applications, approvals, loan and security documents;
• evidence of the property's actual and proposed use;
• leases, occupancy arrangements and related-party connections;
• any variations, extensions, redraws, refinances or substitutions;
• the fund's trust deed and investment-strategy records;
• settlement documents; and
• advice addressing superannuation law, tax, financial-product advice and credit matters within each adviser's professional scope.

This checklist is for identifying issues and records. It is not a recommendation to proceed, refinance, retain an asset or alter an investment strategy. General information about property contract and settlement matters is available on our property page.

Information and advice boundaries

This article provides general factual legal information about enacted legislation. It does not consider any person's objectives, financial situation or needs.

It is not:

• financial-product or investment advice;
• a recommendation to establish, retain or wind up an SMSF;
• a recommendation to acquire, retain or dispose of property;
• advice to borrow, refinance or choose a lender or loan;
• tax advice or a recommendation to adopt a tax position;
• credit advice; or
• legal advice about a specific arrangement.

ASIC explains that a recommendation or opinion intended, or reasonably regarded as intended, to influence a decision about a financial product may be financial-product advice. Advice recommending whether to establish an SMSF is one example. See ASIC's guidance on financial-product advice.

A fact-specific matter may require separate advice from an appropriately experienced superannuation lawyer, a registered tax adviser, a licensed financial adviser and, where applicable, an appropriately authorised credit professional. Each adviser's role and scope should be identified rather than assumed.

Primary legislation and guidance

• Treasury Laws Amendment (Tax Reform No. 1) Act 2026
• Schedule 5 and commencement table—as enacted
• Superannuation Industry (Supervision) Act 1993—latest compilation
• ATO: SMSF investment restrictions and business real property
• ATO SMSFR 2009/1: business real property
• ATO SMSFR 2012/1: LRBA key concepts

This article is general factual legal information only. It is not legal, financial-product, investment, tax or credit advice. The application of Schedule 5 and the wider superannuation-law rules depends on the actual arrangements, documents, dates, asset and circumstances.