Tax Alert - Legislation restricting SMSFs using residential property LRBAs has now passed Parliament

Lowe Lippmann Chartered Accountants

Legislation restricting SMSFs using residential property LRBAs has now passed Parliament

The Treasury Laws Amendment (Tax Reform No 1) Bill 2026 (the Reform No 1 Bill) was passed by Parliament on Thursday 25 June 2026.

Schedule 5 of the Reform No 1 Bill amends section 67A of the Superannuation Industry (Supervision) Act 1993 to restrict future limited recourse borrowing arrangements (LRBAs) on real property to investments in “business real property” (as defined in section 66 of the SIS Act).

Residential property of any kind is excluded from the definition of “business real property” in section 66 of the SIS Act. We note this also excludes newly constructed residential property, which is a distinction at odds with recent exemptions being given to new-builds with other Budget Night tax changes relating to negative gearing and restricting the CGT 50% discount.

Super funds are not generally allowed to borrow for investments, but there has been a concession allowing a self-managed super fund (SMSF) to borrow money to buy single assets like property, if their loans were set up in line with particular requirements, known as LRBAs.

This change means an SMSF will not be able to borrow to buy residential property after the start date of these changes.

When will the restrictions start?

The restriction commences on the 45th day after the amending Act receives assent (which was 26 June 2026), so the expected start date should be around 10 August 2026.

It operates prospectively, so existing borrowing arrangements with a contract date entered into before the start date will not be affected, even if settlement occurs after the start date. We also understand that refinancing of a LRBA established before the start date should remain unaffected.

Is it now impossible to own residential property investments in a SMSF?

With traditional funding via a LRBA, unfortunately Yes!

However, we must note that if an SMSF owns residential property outright, without any LRBA borrowings, the SMSF will not be affected. It is the LRBA borrowing aspect that has changed.

Also note that properties held in superannuation funds will be specifically excluded from the negative gearing restrictions introduced on Budget Night.

Therefore, if an SMSF can acquire a residential property investment after the start date without any borrowings (and thus no LRBA), it is still possible to invest in residential property and effectively negatively gear this against other investment income within the SMSF.

How did this change come to life?

The restriction was not in the original drafting of the Reform No 1 Bill when it was first introduced to the House of Representatives on 28 May 2026. This change was added during the Senate readings, as part of the package the Government agreed with the Australian Greens party.

We understand that residential property LRBAs account for approximately 1% of all residential property borrowing at the moment.

Time will tell if this helps make more residential housing available.

Please do not hesitate to contact your Lowe Lippmann Relationship Partner if you wish to discuss any of these matters further.

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