Significant changes to Limited Recourse Borrowing Arrangements (LRBAs) came into effect on 10 August 2026, changing how SMSFs can use borrowing to acquire real property.
The changes do not mean LRBAs have disappeared or that SMSFs can no longer invest in residential property. Instead, the rules have changed the types of real property that can be acquired through a new LRBA.
For SMSF trustees, the key distinction is between borrowing to acquire residential property, investing in residential property without borrowing, acquiring business real property, and using an LRBA for other eligible investments.
What is an LRBA?
A Limited Recourse Borrowing Arrangement (LRBA) is a specific borrowing structure available to SMSFs where strict requirements under superannuation law are met.
Generally, SMSFs are prohibited from borrowing money. An LRBA provides an exception that allows borrowed funds to be used to acquire a single acquirable asset, or in certain circumstances a collection of identical assets with the same market value.
The asset is generally held through a separate holding trust, with the SMSF holding the beneficial interest.
The “limited recourse” feature is important because, if the SMSF defaults on the loan, the lender’s rights are generally limited to the asset acquired under the arrangement rather than the SMSF’s other assets.
Holzworth Partners also provides an overview of SMSFs and Limited Recourse Borrowing Arrangements.
What changed on 10 August 2026?
The Treasury Laws Amendment (Tax Reform No. 1) Act 2026 amended section 67A of the Superannuation Industry (Supervision) Act 1993.
For arrangements entered into from 10 August 2026, where the asset being acquired under an LRBA is real property, the asset must be business real property.
In practical terms, a new LRBA can no longer generally be used to borrow money to purchase an ordinary residential investment property.
This is a significant change for SMSF trustees who have previously considered residential property borrowing as part of their retirement strategy.
You can read the legislation through the Federal Register of Legislation – Treasury Laws Amendment (Tax Reform No. 1) Act 2026.
For background on the change, see our earlier article, SMSF Residential Property Borrowing Changes: What You Need to Know.
Can an SMSF still use an LRBA to buy commercial property?
Potentially, yes.
The new rules do not abolish property LRBAs altogether. An SMSF can still potentially use an LRBA to acquire business real property, provided all relevant requirements are satisfied.
Business real property generally refers to land and buildings used wholly and exclusively in one or more businesses.
Examples can include
- Offices
- Warehouses
- Factories
- Retail premises
- Workshops
- Medical or professional premises
- Certain farming and primary production properties
However, simply describing a property as “commercial” does not automatically make it business real property. The actual use of the property is important.
Mixed-use properties, particularly those containing both commercial and residential components, may require careful assessment before an SMSF enters into an LRBA.
The ATO provides detailed guidance about business real property and SMSF investment restrictions.
Can an SMSF still buy residential property?
Yes.
This is one of the most important points to understand about the new rules.
The changes restrict the use of a new LRBA to borrow for the acquisition of residential real property. They do not create a general ban on SMSFs investing in residential property.
An SMSF may still potentially purchase residential property without borrowing, using cash and other available resources held within the fund.
The usual SMSF rules continue to apply, including requirements relating to:
- The sole purpose test
- Related-party transactions
- Arm’s-length dealings
- The fund’s investment strategy
- Liquidity and diversification
As a result, residential property can still potentially form part of an SMSF investment strategy, but borrowing through a new LRBA is generally no longer available for this purpose.
What happens if my SMSF already has a residential property LRBA?
There is important transitional protection for qualifying arrangements entered into before 10 August 2026.
The legislation provides protection for certain existing arrangements, including specified arrangements involving pre-commencement borrowings and certain refinancing arrangements.
This means an existing residential property LRBA is not automatically required to be terminated or repaid simply because the new rules commenced.
This transitional protection may be particularly relevant to SMSFs that:
- Already held residential property under an LRBA before 10 August 2026
- Had entered into an eligible acquisition arrangement before commencement but had not yet settled
- Need to consider refinancing an existing grandfathered LRBA
However, trustees should take care before changing lenders, loan terms, ownership arrangements or the underlying structure.
Can an SMSF still refinance an existing residential LRBA?
The legislation specifically preserves certain refinancing arrangements involving borrowings under arrangements entered into before the new rules commenced.
This means an SMSF with an existing residential LRBA is not necessarily locked into its current lender for the remaining life of the loan.
However, refinancing should not be treated as an opportunity to restructure an LRBA without considering the underlying superannuation requirements.
Trustees considering refinancing should obtain appropriate advice before signing new loan documentation or making changes to the holding trust, loan structure or underlying asset.
What other LRBA options remain available?
The 2026 amendment specifically changes the treatment of real property acquired through an LRBA. It does not remove LRBAs for every other eligible asset.
Depending on the circumstances, LRBAs may still potentially be used for other eligible investments, including certain listed shares or units.
These arrangements can be complex and must satisfy the single acquirable asset requirements and the broader SMSF investment rules.
The ATO’s Practical Compliance Guideline PCG 2016/5 provides guidance on arm’s-length terms for certain related-party LRBAs involving real property and listed shares or units.
An LRBA should therefore not simply be viewed as a way to add leverage to an SMSF portfolio. The investment, borrowing arrangement, trust structure and loan terms all need to comply with superannuation law.
What other investment options are available to an SMSF?
The changes provide a useful opportunity for SMSF trustees to review the broader purpose and diversification of their investment portfolio.
Depending on the fund’s trust deed, investment strategy, member circumstances and applicable superannuation rules, an SMSF may potentially invest in a range of assets, including:
- Australian and international shares
- Exchange traded funds (ETFs)
- Managed funds
- Term deposits and cash
- Fixed-interest investments
- Business real property
- Residential property purchased without borrowing
- Listed property investments, such as REITs
- Certain alternative investments
SMSFs may also invest in some collectables and personal-use assets, although strict rules apply to their use, storage, insurance and dealings with related parties.
Crypto assets may also be permitted in some circumstances where the investment complies with the fund’s trust deed, investment strategy and superannuation rules.
The fact that an SMSF can make an investment does not necessarily mean that it should.
Does this mean SMSFs need to move away from property?
Not necessarily.
Property exposure can still potentially be achieved in several ways.
An SMSF may purchase residential property outright where it has sufficient available capital. It may acquire qualifying business real property using an LRBA. Trustees may also consider indirect property exposure through listed property securities, REITs or managed investment funds.
The appropriate approach will depend on the individual circumstances of the fund, including its balance, members’ ages, retirement objectives, liquidity requirements, risk tolerance and need for diversification.
This is where the SMSF’s investment strategy becomes particularly important.
The ATO states that an SMSF investment strategy should consider matters including investment risk and return, diversification, liquidity, the fund’s ability to pay benefits and other costs, and whether insurance should be held for members.
Why diversification and liquidity matter
Direct property can create a significant concentration within an SMSF.
For example, if a $1 million SMSF holds an $800,000 property, a large proportion of the fund’s assets may be exposed to a single asset and property market.
Property can also be relatively illiquid, which becomes particularly important as members approach retirement and the SMSF may need cash to meet pension payments, tax liabilities, property expenses and other obligations.
The LRBA changes therefore provide a useful reason for trustees to consider a broader question:
What combination of investments best supports the retirement objectives of the SMSF members?
Existing LRBA? Now may be a good time for a review
If your SMSF already holds residential or commercial property through an LRBA, the new legislation does not necessarily require immediate changes.
However, it may be worthwhile reviewing:
- The current loan balance and interest rate
- Potential refinancing opportunities
- Cash flow and loan repayment capacity
- The value and performance of the underlying property
- The level of property concentration within the SMSF
- Liquidity requirements
- Members’ retirement and pension requirements
- The fund’s current investment strategy
- Whether the LRBA remains appropriate as members move closer to retirement
An LRBA that was appropriate when it was established may not necessarily remain the most suitable strategy indefinitely.
Related-party LRBA loans require particular care
Some SMSFs use a related party, such as a member or associated entity, as the lender under an LRBA.
These arrangements require careful consideration of documentation, commercial terms and the non-arm’s-length income rules.
The ATO’s Practical Compliance Guideline PCG 2016/5 provides safe-harbour terms for certain related-party LRBAs involving real property and listed shares or units.
Where an arrangement falls outside a safe harbour, this does not automatically mean the arrangement breaches the law. However, trustees may need to demonstrate that the terms are consistent with what independent parties dealing at arm’s length would have agreed.
Trustees should obtain appropriate advice before establishing, varying or refinancing a related-party LRBA.
LRBA changes make professional advice increasingly important
LRBAs have always been one of the more complex areas of SMSF strategy. The changes applying from 10 August 2026 add another important consideration for trustees.
For those considering a new SMSF investment, the starting question should not simply be:
“Can my SMSF borrow to buy this property?”
Instead, trustees should consider the fund’s:
- Overall investment objectives
- Available capital
- Investment timeframe
- Diversification
- Liquidity
- Retirement requirements
- Existing investments
- Available investment alternatives
For existing LRBA holders, the transitional provisions are important, but changes to an existing arrangement should still be approached carefully.
How Holzworth Partners can help
At Holzworth Partners, we help SMSF trustees understand their investment and retirement strategies and the options available to them.
Whether you already have an LRBA, are considering acquiring business real property, want to review an existing SMSF property loan or are exploring alternative investment strategies following the new rules, our team can help you understand the considerations involved.
Our services include:
- SMSF establishment and structuring
- LRBA and SMSF borrowing strategies
- Existing LRBA reviews
- SMSF property investment
- Investment strategy reviews
- Retirement and pension planning
- SMSF accounting and taxation
- Coordination with lenders, accountants and legal advisers where required
The new LRBA rules do not mean the end of SMSF property investment. They do, however, make it more important to understand what an SMSF can acquire, how it can be funded and whether the investment supports the members’ long-term retirement objectives.
If you have an existing LRBA or are considering your next SMSF investment, contact Holzworth Partners to discuss how the new rules may apply to your circumstances.
Important information: This article provides general information only and does not constitute personal financial, taxation or legal advice. It has been prepared without considering your objectives, financial situation or needs. SMSF and LRBA arrangements are subject to detailed legislative requirements. You should obtain appropriate professional advice before establishing, refinancing or varying an LRBA or making an SMSF investment.