If you’re managing an SMSF in Geelong and property forms part of your investment strategy, there has been an important change to the borrowing rules you need to know about.
From 10 August 2026, self-managed super funds (SMSFs) can generally no longer enter into a new limited recourse borrowing arrangement (LRBA) to purchase residential property.
That doesn’t mean SMSFs can no longer invest in property, or that LRBAs have disappeared altogether. Instead, the rules have narrowed the type of real property that can be acquired using a new LRBA.
So, what does that mean if you already own property through your SMSF, were considering buying residential property, or operate a business and would like your SMSF to own your business premises?
Let’s break it down.
First, what is an LRBA?
SMSFs are generally restricted from borrowing money, but a limited recourse borrowing arrangement provides an exception in certain circumstances.
An LRBA allows an SMSF to borrow money to acquire an eligible asset, subject to specific rules and structural requirements. The arrangement is called “limited recourse” because the lender’s rights are generally limited to the asset acquired under the arrangement if the loan defaults.
For example, under the previous rules, an SMSF with $400,000 available to invest may have considered using some of those funds towards the purchase of a $650,000 residential investment property, with the balance funded through an LRBA.
From 10 August 2026, a new LRBA generally can’t be used to make that type of residential property purchase.
So, are LRBAs now banned?
No. The change specifically affects new LRBAs involving real property.
Previously, an SMSF could potentially use an LRBA to acquire eligible residential or commercial property, provided the arrangement complied with the relevant superannuation rules.
From 10 August 2026, real property acquired using a new LRBA generally needs to qualify as business real property.
In practical terms, an SMSF can no longer establish a new LRBA simply to borrow money to purchase an ordinary residential investment property, such as a house or apartment that will be rented to residential tenants.
However, an SMSF may still be able to use an LRBA to acquire qualifying business premises, such as an office, warehouse, factory or shop.
The important word here is qualifying. A property isn’t automatically considered business real property simply because it looks commercial or is marketed as a commercial investment.
What is business real property?
Broadly, business real property is land and buildings used wholly and exclusively in one or more businesses.
It is the use of the property, rather than simply its appearance or zoning, that matters.
For example, imagine a Geelong business currently leases a warehouse from an unrelated landlord. The business owners have an SMSF and are considering whether the fund could purchase a warehouse that will continue to be used as business premises.
Provided the property and proposed arrangement satisfy the relevant requirements, this is the type of property that may qualify as business real property and potentially be acquired using an LRBA.
Other examples could include:
- an office used by an accounting, legal or consulting business
- a warehouse used by a distribution or manufacturing business
- a retail shop used to operate a business
- a factory or workshop used wholly for business purposes.
There can also be situations that aren’t quite as obvious.
A property that looks residential may potentially qualify if it is genuinely used wholly and exclusively for business purposes. For example, a former house that has been converted and is used entirely as professional consulting rooms may meet the definition, depending on the circumstances.
On the other hand, a property that appears commercial may not necessarily qualify if part of it is being used privately.
This is why it’s important to look at the actual use of the property rather than relying on a property listing or its appearance.
What about farms and rural properties?
Farming properties can require a little more consideration.
A farm used in a genuine business may qualify as business real property even where there is a residence on the land, provided the relevant requirements are satisfied.
There are specific rules and exceptions that can apply to these arrangements, so a farm with a house on it shouldn’t automatically be assumed to qualify.
For example, if an SMSF is considering purchasing a working farm through an LRBA, the way the land, residence and surrounding area are used will need to be considered before determining whether the property meets the business real property requirements.
Can an SMSF still buy residential property?
Yes, potentially, the change relates to borrowing through a new LRBA, not an SMSF’s ability to hold residential property altogether.
An SMSF may still be able to purchase a residential investment property outright using available fund money, provided the investment complies with the fund’s investment strategy and the relevant superannuation rules.
For example, an SMSF with sufficient cash may be able to purchase an investment property without borrowing.
The usual SMSF rules still apply.
Among other requirements, investments need to be maintained for the purpose of providing retirement benefits to members. There are also strict rules around related parties and personal use.
This means, for example, you generally can’t have your SMSF purchase a holiday house and then use it for family weekends, or buy a residential property for you or a family member to live in.
What if my SMSF already has a residential property loan?
If your SMSF already has a qualifying LRBA that was entered into before the new rules commenced, the change doesn’t automatically mean you need to sell the property or unwind the loan.
Existing arrangements can generally continue.
For example, say your SMSF purchased a residential investment property under an LRBA several years ago and is still repaying the loan. The introduction of the new rules on 10 August doesn’t, by itself, require the fund to dispose of the property.
There are also transitional provisions for certain arrangements that were already underway before the commencement date.
Existing qualifying LRBAs may also be able to be refinanced without losing their existing treatment. However, refinancing or changing an existing arrangement needs to be approached carefully, as changes to the structure or borrowing may have different consequences.
Before refinancing, restructuring or changing an existing LRBA, it’s worth having the arrangement reviewed.
What does this mean if you’re considering property through your SMSF?
The first question is no longer simply, “Can my SMSF buy this property?”
You also need to consider how the purchase will be funded and, if borrowing is involved, whether the property satisfies the business real property requirements.
Consider three different scenarios.
Scenario 1: You want your SMSF to borrow to buy a residential investment property.
For a new LRBA entered into from 10 August 2026, this will generally no longer be available where the property is ordinary residential real property.
Scenario 2: Your SMSF has enough available funds to buy a residential investment property without borrowing.
This may still be possible, subject to the fund’s investment strategy and the usual SMSF investment and compliance rules.
Scenario 3: You run a business and your SMSF is considering purchasing business premises.
An LRBA may still be available where the property qualifies as business real property and the arrangement satisfies the other relevant requirements.
The answer therefore depends on much more than whether the property is labelled “residential” or “commercial”.
Before you sign a property contract
Property transactions involving an SMSF can already involve several moving parts, and the new borrowing restrictions add another consideration.
Before committing to a purchase, it’s important to understand:
- whether the property can be acquired by your SMSF
- whether it qualifies as business real property where borrowing is proposed
- how the purchase fits within your fund’s investment strategy
- whether the proposed LRBA structure complies with the relevant requirements
- the tax and cash-flow implications for your fund
- how the property will be used and who it will be leased to
- whether an existing LRBA can be refinanced or changed without affecting its treatment.
Getting the structure right before signing a contract is particularly important. Something that appears to be a relatively small detail in the ownership, use or borrowing arrangement can have broader SMSF, tax and compliance implications.
Looking for SMSF support in Geelong?
SMSFs can provide greater control over how your superannuation is invested, but they also come with additional responsibilities and rules to navigate.
If you’re considering purchasing property through your SMSF, reviewing an existing LRBA or trying to understand how the changes from 10 August 2026 may affect your fund, having the right advice early can help you understand your options before making any commitments.
Cathryn Walley, Associate Principal at LBW Business + Wealth Advisors, specialises in superannuation, self-managed super funds and retirement planning. She works closely with clients to simplify complex SMSF decisions and develop strategies that reflect their goals, circumstances and longer-term plans.
If you’d like to discuss your SMSF with Cathryn or our Geelong Wealth team, contact LBW on (03) 5221 6111.
This blog provides general educational information only. The content does not take into account your personal objectives, financial situation or needs. You should consider taking financial advice tailored to your personal circumstances. LBW Business + Wealth Advisors is an Authorised Representative of LBW Wealth Pty Ltd ABN 56 652 382 128 AFSL 534569. Please see our website www.lbwca.com.au or call 03 5221 6111 for more information on our available services.
