If your fund already holds a geared residential property, you can breathe out. Nothing has happened to it.
But if borrowing to buy property was somewhere on your fund's roadmap, the road has narrowed.
From 10 August 2026, an SMSF entering a new limited recourse borrowing arrangement to acquire real property can only acquire business real property. The change came out of the Treasury Laws Amendment (Tax Reform No. 1) Act 2026, which received Royal Assent on 26 June and commenced 45 days later.
It's Not Actually a Ban on Borrowing
The measure has been widely reported as a ban on SMSF property borrowing. That framing is close enough for headlines, but it isn't how the law operates.
LRBAs still exist. Your fund can still borrow to acquire an asset, and the limited recourse protection is unchanged.
What's changed is the definition of what a new LRBA can acquire. Where the asset is real property, it must now be business real property — broadly, land and buildings used wholly and exclusively in one or more businesses.
That distinction matters more than it first appears, and we'll come back to it.,
Your Existing Arrangements Are Safe
Grandfathering here is genuine, not partial.
• An LRBA entered into before 10 August 2026 continues under the old rules for its full term
• There's no forced sale, no loan-to-value reset, and no compliance issue arising from the reform itself
• Contracts exchanged before 10 August are protected even if settlement happens afterwards
• Refinancing an existing arrangement on substantially the same terms remains available
Normal SMSF compliance obligations continue as they always have — sole purpose test, related-party rules, in-house asset limits.
Where Trustees Could Come Unstuck
Refinancing is protected. Restructuring may not be.
A top-up, an equity release, a change to the security, or a change to the underlying asset can potentially be treated as a new arrangement — and a new arrangement is subject to the new rules.
If your fund's LRBA is coming up for review, or you've been thinking about drawing on equity, get advice before you sign anything. The difference between a refinance and a new arrangement is not always obvious from the loan paperwork.
The Business Real Property Trap
Because the new test relies on the business real property definition, the results aren't always intuitive.
Some residential property can still qualify — a residence genuinely used wholly and exclusively in a business. Some commercial property won't. Lifestyle blocks, hobby farms and land not used in a genuine business are the holdings most likely to fall outside.
The treatment of newly constructed and off-the-plan commercial premises is also less settled than trustees might assume, with further ATO guidance still to come.
If you're considering a geared commercial purchase, don't assume "commercial" and "business real property" mean the same thing. They don't.
What This Doesn't Stop
Your fund can still buy residential property outright, without borrowing. The reform restricts the use of LRBAs, not the asset class itself.
For funds that were relying on gearing to make a residential purchase work, though, that's a meaningful difference — and it's worth revisiting the investment strategy rather than leaving a plan in place that the law no longer supports.
Worth a Conversation?
If your fund has an existing LRBA, has been planning a geared purchase, or holds property where the business real property status isn't clear cut, it's a good time to review where you stand.
If you'd like to talk through how this applies to your fund, reach out to our office.