If you run a self-managed super fund, or have thought about using one to buy an investment property, there's a change worth knowing about, and it arrived quickly.

As part of the negotiations to pass the government's broader tax reform package, a new restriction on SMSF borrowing was added late in the process. It bans SMSFs from entering new limited recourse borrowing arrangements, LRBAs, for residential property. It's now law, and it takes effect from 10 August 2026.

This wasn't flagged in the original Budget. It emerged as a condition of the Greens' support for the government's tax legislation in the Senate, and moved from proposal to law in a matter of weeks. That speed is itself worth noting, because it means many trustees haven't had the usual lead time to plan around it.

What's actually changing

An LRBA is the mechanism that allows an SMSF to borrow money to buy a single asset, commonly residential property, while limiting the lender's recourse to that specific asset if the loan isn't repaid. It's been a well-used strategy for funds looking to acquire property without needing the full purchase price in cash.

From 10 August 2026 (45 days after the parent legislation received royal assent on 26 June), SMSFs will no longer be able to enter new LRBAs to acquire residential property. The change was made through Schedule 5 of the Treasury Laws Amendment (Tax Reform No. 1) Act 2026, amending the Superannuation Industry (Supervision) Act 1993. It requires that where an SMSF enters a new borrowing arrangement over real property, that property must be business real property — broadly, property used wholly and exclusively in a business, the same definition trustees already know from the related-party acquisition rules — rather than a house, unit or other residential dwelling.

Importantly, the ban is specific to residential property borrowing. It does not affect:

• LRBAs for commercial or business real property
• Existing shares, ETFs and managed funds held inside an SMSF
• An SMSF's ability to buy residential property outright, without borrowing

What's grandfathered

Trustees with an existing residential LRBA are protected. Based on the legislation and industry guidance available at the time of writing:

• Existing LRBAs in place before the commencement date continue as normal.
• Refinancing an existing residential LRBA does not breach the restriction — trustees with current loans can refinance without losing their grandfathered status.
• If you're part-way through a geared residential purchase, the position is less settled. Industry commentary suggests a binding arrangement entered before 10 August 2026 is protected even if settlement follows, but the safer reading of the legislation is that the borrowing arrangement itself — contract and loan documentation — needs to be in place before that date. If you're mid-transaction, confirm your specific position with your lawyer and lender now rather than relying on either reading.

If your fund already holds a geared residential property, this change does not require you to do anything differently. The rules that applied when you set up the arrangement continue to apply to it.

Why this happened

The government's primary legislative priority this term has been its capital gains tax and negative gearing reforms (covered in a separate article this month). To secure the Greens' support for that package in the Senate, the government agreed to this additional amendment on SMSF borrowing. It was tabled, negotiated and passed within days, a genuinely fast turnaround for a change of this kind.

Industry bodies have been critical of the process rather than necessarily the substance, noting that a change to superannuation rules of this significance was progressed without the consultation or evidence-based review that changes to super typically go through. Worth knowing, even if it doesn't change what you need to do.

What this means for you: a practical framework

If your SMSF already has a residential LRBA: No action required. Your existing arrangement, and future refinancing of it, is protected under the grandfathering provisions.

If you were actively planning to set up a new residential LRBA: The window is narrow, and the safest assumption is that the full arrangement — contract and loan documentation — needs to be executed before 10 August 2026. This is not a decision to rush purely to beat a deadline, but if it was already part of your plan, timing now matters and your lawyer and lender should be involved immediately.

If you were considering an SMSF property strategy but hadn't started: The residential property borrowing route is closing. Commercial or business real property borrowing remains available, and buying residential property outright (without gearing) remains an option, though it changes the amount of capital your fund needs upfront.

If you're unsure whether your fund's current arrangement is affected: This depends on the specific structure and timing of your loan, and is worth confirming directly with your SMSF adviser or accountant rather than assuming.

Questions worth asking:

• Is my existing LRBA (if I have one) fully grandfathered, including any planned refinancing?
• If I was part-way through a residential property purchase inside my SMSF, is the full arrangement in place before the commencement date?
• Does this change the relative appeal of commercial property, direct shares, or other assets inside my fund?

A common mistake to avoid: assuming "grandfathered" means nothing needs checking. The protections are specific about timing and about what counts as an arrangement being in place. If you're mid-transaction, it's worth confirming your position precisely rather than assuming you're covered.

The bottom line

This is a genuine change to what SMSFs can do, introduced with unusually little notice. If you already have a residential LRBA, you're protected and there's no need for concern. If you were planning to set one up, the practical deadline is close, and it's worth getting clarity quickly rather than assuming there's time to spare. For most trustees not actively pursuing a new residential property purchase through their fund, this is a "know about it" change rather than a "do something now" change.

Speak with an adviser

If you have an SMSF and are unsure how this affects your existing arrangements, or you were considering a property purchase through your fund, it may be worth reviewing your position before the commencement date. We're happy to help you work through it.

Important information

This article is general information only. It has been prepared without taking into account your objectives, financial situation or needs, and should not be relied on as personal financial or tax advice. Superannuation and borrowing arrangements are complex and depend heavily on individual circumstances, so we'd recommend speaking with your SMSF adviser, accountant and financial adviser before acting on anything above. FinPeak Advisers is a Corporate Authorised Representative (1249766) of Spark Advisors Australia (AFSL 380552).