The Federal Government has announced significant changes to the rules surrounding Self-Managed Super Funds (SMSFs) and residential property borrowing.
Under the proposed legislation, SMSFs will no longer be able to use a Limited Recourse Borrowing Arrangement (LRBA) to purchase residential property. The change forms part of the Government’s broader housing and taxation reforms and could affect Australians planning to invest in residential property through their super.
If you’re considering an SMSF property investment strategy, it’s important to understand what these proposed changes mean and how they may impact your future plans.
What is Changing?
Generally, superannuation funds are not permitted to borrow money.
The ability for an SMSF to borrow through an LRBA has been a specific exception under superannuation law since 2007. These arrangements allow an SMSF to borrow funds to acquire a single eligible asset while limiting the lender’s rights if the loan defaults.
Under the proposed changes, SMSFs will no longer be permitted to use an LRBA to purchase residential property.
Borrowing will only remain available where the property qualifies as business real property, as defined under superannuation legislation.
When will the Changes Begin?
The proposed commencement date is 10 August 2026.
According to the Government’s announcement:
- Existing residential property LRBAs can continue.
- Existing loans may still be refinanced.
- Contracts exchanged before the commencement date will generally not be affected, even if settlement occurs later.
As legislation can change during the parliamentary process, it’s important to seek professional advice before making investment decisions.
What Does This Mean for SMSF Trustees?
For many Australians, borrowing through an SMSF to purchase residential property will no longer be an available strategy.
The proposed rules apply regardless of whether the property is:
- A new build
- An established home
- An investment property
Importantly, some properties that appear commercial may not qualify as business real property.
For example, a mixed-use property with a retail shop downstairs and a residential apartment upstairs may not satisfy the legislative definition because the property must generally be used wholly and exclusively in a business.
Understanding these distinctions is essential before entering into any SMSF property transaction.
What Can SMSFs Still Do?
These changes do not prevent SMSFs from investing in residential property altogether.
SMSFs may still:
- Purchase residential property using available fund assets without borrowing.
- Purchase qualifying commercial property using an LRBA where it meets the definition of business real property.
Borrow to acquire eligible investments such as certain shares or managed investment holdings where legislative requirements are met.
Every SMSF investment must continue to satisfy the fund’s investment strategy and the requirements of the Superannuation Industry (Supervision) Act.
How Holzworth Partners can Help
Changes to superannuation legislation can have a significant impact on your retirement strategy.
At Holzworth Partners, we help clients understand changing legislation and provide practical advice on:
- SMSF establishment
- SMSF compliance
- Property investment strategies
- Retirement planning
- Ongoing accounting and taxation
- Strategic reviews
Whether you’re considering purchasing property through your SMSF or reviewing your existing investment strategy, our experienced team can help you understand your options.
This article is intended for general information only and does not constitute financial product or taxation advice. It has been prepared without considering your personal objectives, financial situation or needs. Before making any financial decision, you should seek professional advice appropriate to your individual circumstances.