KEY TAKEAWAYS: New residential SMSF borrowing ends from 10 August 2026 – SMSFs will no longer be able to establish new Limited Recourse Borrowing Arrangements (LRBAs) to purchase residential property. Borrowing remains available for eligible commercial property – SMSFs can continue to use LRBAs to acquire qualifying business real property, subject to existing superannuation rules Existing residential LRBAs are protected – Residential property loans established before 10 August 2026 will be grandfathered, allowing trustees to continue managing those borrowing arrangements under the transitional provisions The landscape for Self-Managed Super Fund (SMSF) property investing is changing significantly. From 10 August 2026, SMSFs will no longer be permitted to establish a new Limited Recourse Borrowing Arrangement (LRBA) to acquire residential property. Instead, SMSF borrowing will be restricted to eligible business real property, while existing residential LRBAs entered into before the commencement date will continue under grandfathering provisions. These reforms were introduced through the Treasury Laws Amendment (Tax Reform No.1) Act 2026 following its passage through Parliament and Royal Assent. For trustees, investors and property professionals, this represents one of the most significant changes to SMSF property investing in more than a decade. What is Changing? From 10 August 2026: New SMSF borrowings (LRBAs) for residential property will no longer be permitted, SMSFs may continue to use LRBAs to acquire eligible business real property, subject to existing superannuation rules. Existing residential LRBAs established before the commencement date are grandfathered, meaning they can continue under the current rules and may generally be refinanced in accordance with the legislation. The reform targets new borrowing arrangements only. It does not prohibit SMSFs from owning residential property outright where no borrowing is involved. Why Has the Government Made This Change? The Government has stated that the reforms are intended to: Reinforce the primary purpose of superannuation as providing retirement income; Reduce investment risk associated with leveraged residential property; Limit the use of borrowed superannuation funds in the residential housing market; and Simplify the regulatory framework surrounding SMSF borrowing. While SMSF borrowing represents only a small proportion of Australia’s overall housing finance market, policymakers have argued that restricting leveraged residential investment aligns the superannuation system more closely with its long-term retirement objectives. Who Is Affected? The changes primarily affect: Individuals planning to establish an SMSF to purchase residential investment property using borrowed funds; Existing SMSF trustees considering future residential acquisitions with finance; Mortgage brokers specialising in SMSF lending; and Developers and property professionals working with SMSF investors. If your investment strategy relied on using leverage to acquire residential property through super, that option will generally no longer be available after 10 August 2026 What Does Grandfathering Mean? One of the most important aspects of the legislation is the grandfathering of existing arrangements. If an SMSF has entered into a qualifying residential LRBA before the commencement date, the borrowing arrangement is generally protected under the transitional provisions. This means trustees can continue managing those existing loans without being forced to dispose of the property simply because the law has changed. Existing arrangements and certain refinancing scenarios remain recognised under the legislation. However, trustees should seek professional advice before refinancing or restructuring an existing LRBA to ensure it continues to satisfy the legislative requirements. What About Commercial Property? Importantly, the reforms do not eliminate SMSF borrowing altogether, Borrowing remains available for eligible business real property, meaning many business owners can still use their SMSF to acquire commercial premises through an LRBA. This continues to provide opportunities for businesses wishing to own the property from which they operate while building retirement wealth within their superannuation fund. Existing LRBA requirements and SMSF investment rules continue to apply. Can SMSFs Still Buy Residential Property? Yes – but the method of acquisition changes After 10 August 2026, SMSFs may still purchase residential investment property provided the fund does not borrow to complete the acquisition. This means trustees will need sufficient cash or other available fund assets to purchase the property outright, which may influence both investment strategy and property selection. What Should Trustees Do Now? If you currently have an SMSF or are considering property investment through super, now is the time to review your strategy. Key considerations include: Reviewing any planned residential acquisitions; Confirming whether existing borrowing arrangements qualify for grandfathering; Assessing whether commercial property better aligns with your long-term objectives; Reviewing your SMSF investment strategy to ensure it reflects the new legislative environment; and Obtaining advice before entering into any new property transaction. Early planning can help avoid costly restructuring and ensure your investment strategy remains compliant. Final Thoughts The 10 August 2026 reforms mark a significant shift in SMSF property investment. While leveraged residential property investment through SMSFs is coming to an end for new acquisitions, opportunities remain for trustees investing without borrowings and for business owners acquiring eligible commercial property through an LRBA. For existing borrowers, the grandfathering provisions provide important certainty, but understanding how the new rules apply to your individual circumstances is essential. If you’re considering property investment through your SMSF – or need to understand how these changes affect your current borrowing arrangements – professional advice has never been more important. ABOUT KAY VITOGIANNIS: Kay joined the Coutts team in May 2021 working as a Licensed Conveyancer within our Property & Conveyancing team, based in our Narellan office. Kay has over 20 years of experience in the Legal industry. She began her journey in CBD Conveyancing firms as a secretary and attained her Advanced Diploma in Conveyancing in December 2010. For further information please don’t hesitate to contact: Kay Vitogiannis Licensed Conveyancer info@couttslegal.com.au 1300 268 887 Contact Coutts today. This blog is merely general and non specific information on the subject matter and is not and should not be considered or relied on as legal advice. Coutts is not responsible for any cost, expense, loss or liability whatsoever in relation to this blog, including all or any reliance on this blog or use or application of this blog by you. Contact Us