If you have been planning to buy an investment property inside your self-managed superannuation fund using borrowed money, the rules have changed. New federal laws restrict the ability of SMSFs to borrow to purchase residential property, and there is a limited transition period before they take full effect. Understanding what has changed, and what has not, will help you make a clear and confident decision about your next step.

What has changed?

From 10 August 2026, self-managed superannuation funds (SMSFs) can no longer enter into new limited recourse borrowing arrangements (LRBAs) to purchase residential property. The change was made by the Treasury Laws Amendment (Tax Reform No. 1) Act 2026, which received Royal Assent on 26 June 2026, with the ban commencing 45 days later. It was introduced by an amendment to the government’s broader tax reform package and formed part of the agreement that secured the package’s passage through the Senate.

The reform is aimed at housing affordability. It is intended to reduce the extent to which super funds borrow to compete with other buyers in the residential property market.

What is an SMSF?

An SMSF is a private superannuation fund that its members manage themselves. In most cases the members, or a related party, are also the trustees. That means they are responsible for making the fund’s investment decisions and for ensuring the fund complies with superannuation and tax laws. An SMSF can invest in a wide range of assets, including shares, cash, managed funds and property.

This is different from a traditional industry or retail super fund, where investment decisions are generally made by professional fund managers. Members of those funds choose from a set of investment options, but they do not directly control the fund’s assets. An SMSF gives members more control, along with more responsibility, administration and compliance obligations.

What is a limited recourse borrowing arrangement?

An LRBA is a special type of borrowing permitted under superannuation law. It has allowed an SMSF to borrow money to buy a single asset, such as a residential property. The property is usually held by a separate trustee, often called a bare trustee, until the loan is repaid. The lender’s rights are “limited recourse”, which means that if the SMSF defaults, the lender can generally only recover against the property bought with the loan, not the fund’s other assets. LRBAs have been available since 2007.

What the change does, and does not, do

The new rules are focused on stopping new residential property purchases funded by SMSF borrowing. They do not abolish SMSFs, and they do not require funds to sell residential property that has already been lawfully acquired.

In particular:

• Existing residential LRBAs are protected (grandfathered) and can continue.
• Refinancing of a pre-commencement borrowing is still permitted, provided the loan balance does not increase.
• A purchase is protected if the contract is entered into before commencement, even if settlement occurs afterwards.
• SMSFs can still buy residential property outright, using the fund’s own cash rather than borrowing.
• Borrowing to acquire business real property (broadly, commercial premises used in a business) remains available under the existing rules.

The general tax treatment of superannuation is not changed by this measure.

What it means for trustees

The practical effect is significant for anyone who was planning to use superannuation savings together with borrowed funds to buy a residential investment property. For new arrangements, that strategy will no longer be available once the ban commences. Trustees who still want to invest through their fund may need to consider alternatives permitted under superannuation law, such as shares, managed funds, cash or term deposits, or an unleveraged residential purchase funded entirely from the fund’s cash.

Thinking about acting before the deadline?

Because contracts entered into before 10 August 2026 can still qualify, some trustees may feel pressure to rush a purchase through. Caution is sensible here. Establishing an SMSF, setting up a holding trust, obtaining lender approval and exchanging contracts all take time, and the structures must be put in place correctly to be protected. A property that only makes sense because of a looming deadline may not be a sound long-term investment. If you are part way through a purchase, it is worth confirming the detail promptly rather than assuming the transition period will protect you.

How this fits the broader tax reforms

The residential LRBA ban was one part of a wider package of housing and tax changes. From 1 July 2027, the 50 per cent capital gains tax discount for individuals, trusts and partnerships is to be replaced with cost base indexation and a minimum 30 per cent tax on capital gains, and negative gearing on residential investment properties is to be limited largely to new builds (with properties held before the 12 May 2026 Budget announcement generally preserved). A separate measure proposing a minimum 30 per cent tax on distributions from discretionary trusts has been announced to apply from 1 July 2028, with further detail still to be settled. Several of these measures include exclusions, and the finer points continue to be developed, so the position for any particular fund or investor should be checked carefully.

How Complete Legal can help

These changes sit at the intersection of superannuation, property and estate planning, and the details matter. We can help you with the legal side of an SMSF property matter, including reviewing whether an in-progress purchase can be completed within the transition period, making sure contracts and holding trust structures are correctly documented, handling the conveyancing on an SMSF purchase, and considering how residential property held in super fits your wider estate plan. Where your questions involve tax or financial strategy, we work alongside your accountant or financial adviser, as we do not provide financial or tax advice.

This article is general information only and is current as at July 2026. It does not take your personal circumstances into account, and it is not financial or legal advice. Superannuation and borrowing rules are complex, and you should seek advice tailored to your situation before acting.

If you are considering a property purchase through your SMSF, or you want to understand how these changes affect an existing arrangement, contact our experienced team to discuss your situation.