Key takeaways
- From 10 August 2026, SMSFs can't enter into new limited recourse borrowing arrangements (LRBAs) to buy residential property.
- The change isn't retrospective: existing residential LRBAs, refinancing of those loans, and contracts exchanged before the cut-off are protected.
- SMSFs can still buy residential property outright with cash, and can still borrow to buy business real property.
- Funds that already own residential property don't need to sell or restructure.
- Investors who planned to gear into residential property through super will need a new strategy.
The rules for self-managed super funds (SMSFs) investing in residential real estate have changed significantly. Following recent federal reforms, SMSFs can no longer use borrowed money to buy a house, unit or townhouse.
If you have been thinking about using your super and a loan to buy residential property, understanding the new rules is essential to keeping your fund compliant with the ATO. Here is what has changed, what remains protected, and how SMSF investors can adapt.
The residential borrowing ban
From 10 August 2026, SMSFs are prohibited from entering into new limited recourse borrowing arrangements (LRBAs) for residential property.
The measure was introduced as part of a wider housing affordability and tax reform package. It responds to long-standing concerns from the ATO and APRA about high levels of gearing and concentration of risk inside super funds.
Under the new framework, lenders can no longer write new LRBA loans where the underlying asset is residential real estate held by an SMSF.
What is grandfathered (protected)
The changes are not retrospective. Transitional rules protect existing arrangements:
- Existing LRBAs: if your SMSF already had a residential LRBA in place before 10 August 2026, you can continue to hold and manage the property under the original terms.
- Refinancing: residential loans established before the cut-off can generally be refinanced, for example to secure a better interest rate.
- Contracts exchanged early: if your SMSF exchanged unconditional contracts to buy a residential property before 10 August 2026, the purchase is protected, even if settlement or loan approval happened afterwards.
What has not changed
SMSFs are not banned from owning residential property. The restriction applies only to borrowing inside the fund.
- Buying outright with cash: if your SMSF has enough cash, contributions or unencumbered liquid assets to buy a residential property outright, including stamp duty and other acquisition costs, it can still do so. The usual rules still apply: the property must meet the sole purpose test and can't be lived in or rented by members or related parties.
- Commercial property borrowing: the ban applies only to residential real estate. SMSFs can still use LRBAs to buy eligible business real property, such as offices, shops and warehouses, under the existing rules.
- Existing portfolios: funds that already own residential property don't need to unwind their structures or sell.
Strategic options for property investors
If your retirement plan relied on gearing into residential property through super, you will need to adjust. We generally see investors considering three paths:
- Building up for a cash purchase: growing member balances through contributions and earnings until the fund can buy a residential property outright.
- Shifting to commercial property: looking at business real property, where LRBA borrowing is still allowed.
- Diversifying asset classes: allocating capital to other investments, such as managed funds, direct shares or fixed income.
Whichever path you take, update the fund's investment strategy, document the reasons for the change, and check that your trust deed allows the investments you are considering.
Next steps
Superannuation and property rules are complex, and mistakes can lead to significant ATO penalties. Whether you are managing an existing property in your fund or planning your long-term retirement strategy, get advice before you act.
Our registered tax agents and SMSF Specialist Advisors can review your fund's position and help you plan your next move. Learn more about our SMSF services, or book a free 15-minute consultation. Consultations are available in English, Punjabi (ਪੰਜਾਬੀ), Hindi (हिंदी) and Urdu (اردو).
This article contains general information only and does not take your personal circumstances into account. Tax and superannuation rules change, and some measures discussed may be subject to legislation. Speak with a registered tax agent before acting.
Need advice on your situation?
Talk to a registered tax agent and SMSF Specialist Advisor at Supertax.
