On 23 June 2026, the Federal Government announced plans to restrict the use of Limited Recourse Borrowing Arrangements (LRBAs) for the purchase of residential property within a Self Managed Superannuation Fund.

The Treasury Laws Amendment (Tax Reform No 1) Act 2026 received Royal Assent on 26 June 2026, and the law amendment comes into effect 45 days from this date – being 10 August 2026 (effective date).

What does this mean for SMSF Trustees?

As of the effective date, SMSFs will no longer be able to use borrowed money to purchase residential property.

SMSFs can still borrow money using an LRBA to purchase business real property (such as commercial property) and other investments including listed shares.

An SMSF can still invest in residential property, this new law merely restricts any SMSF from purchasing a residential property using borrowed funds after 10 August 2026.

What about existing investments?

Existing LRBAs associated with residential property are grandfathered from this change of law, meaning that they are allowed to continue and are not required to be wound back.  Trustees with such an investment are still able to refinance their current loan within their SMSF – provided that the refinance is genuinely connected to the existing LRBA that had commenced prior to the effective date.

Trustees with existing LRBAs must continue to ensure that their borrowing arrangement remains compliant with the law.

Any transitional arrangements?

The effective date is most important to trustees who are currently in the process of procuring such investments in residential property with an LRBA.  If a trustee has signed a purchase contract, under an anticipated LRBA structure prior to 10 August 2026, with settlement to occur after this date, their investment may be protected.  Trustees must retain clear evidence of when contracts were entered into and may need to seek advice if relying on protection.

What needs to be done?

Any SMSF with a current LRBA linked to residential property should review their documentation to ensure it remains compliant with the law.

Any trustee considering commencing an LRBA arrangement after the effective date, needs to ensure that if the underlying investment is real property – it is business real property.

All trustees should review their investment strategy to ensure it is up to date and compliant with all the expectations of the ATO.