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Major changes to SMSF property investing are coming from 10 August 2026. New legislation will prevent SMSFs from entering into new borrowing arrangements to purchase residential property, while existing loans are expected to be protected.
For many years, Self-Managed Super Funds (SMSFs) have been able to use a Limited Recourse Borrowing Arrangement (LRBA) to borrow money and purchase investment property. However, a significant legislative change has recently altered the landscape for SMSF property investors.
In June 2026, Federal Parliament passed legislation that will prohibit SMSFs from entering into new LRBAs to acquire residential property. Following Royal Assent on 26 June 2026, the change is scheduled to commence on 10 August 2026.
What Has Changed?
Historically, SMSFs could borrow to purchase residential investment properties through an LRBA structure, allowing trustees to leverage their superannuation benefits while maintaining the tax advantages available within superannuation.
Under the new rules, SMSFs will no longer be permitted to establish new LRBAs to purchase residential property. Instead, borrowing arrangements for real property will generally be limited to assets that meet the definition of Business Real Property (BRP) under superannuation legislation. Commercial properties such as offices, warehouses, factories and certain business premises remain unaffected by the changes.
What If You Already Have an SMSF Property Loan?
The good news for existing SMSF property investors is that current arrangements are expected to be grandfathered. This includes the ability to refinance on the basis it’s like for like.
This means SMSFs that already hold residential property under an LRBA can continue with their existing loan arrangements without being forced to unwind the structure. Existing properties will retain the usual concessional superannuation tax treatment, including the tax advantages available on rental income and capital gains within the SMSF environment.
Investors who exchanged contracts before the commencement date are also expected to be protected, even if settlement occurs after the new rules begin.
Why Was the Change Introduced?
The government has indicated that the change aims to reduce the attractiveness of leveraging superannuation savings into residential property and to limit the role of SMSF borrowing in the housing market.
The restriction also reflects concerns that have been raised over many years regarding the risks associated with borrowing inside superannuation, including:
Supporters of the reform argue that superannuation should primarily be used to build diversified retirement savings rather than facilitate leveraged residential property investment.
What Opportunities Still Remain?
While the residential borrowing pathway is closing, SMSF trustees will continue to have several options available:
Commercial Property
Business real property remains eligible for LRBA borrowing. This continues to be an attractive strategy for business owners looking to have their SMSF own the premises from which they operate.
Direct Property Purchases Without Borrowing
SMSFs can still purchase residential or commercial property outright using existing fund assets where appropriate and consistent with the fund's investment strategy.
Diversified Investment Portfolios
For many investors, professionally managed portfolios, managed funds, exchange traded funds (ETFs), managed accounts and diversified superannuation strategies may offer broader diversification, lower administration requirements and improved liquidity.
Key Takeaways for SMSF Trustees
Moving Forward
The end of new residential property borrowing within SMSFs represents one of the most significant changes to SMSF gearing rules since LRBAs were introduced in 2007. While the change may reduce flexibility for some investors, it also reinforces the importance of diversification, liquidity and prudent retirement planning.
As always, every SMSF has unique circumstances. A strategy that was suitable under the previous rules may need reconsideration in light of the new legislation. Trustees should ensure any future investment decisions continue to align with their retirement objectives, risk tolerance and overall financial plan.
This article is general information only and does not constitute financial, tax or legal advice. Individuals should seek professional advice before making any decisions regarding their SMSF or investment strategies.
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