Limited recourse borrowing arrangements to be limited

When the budget was handed down in May, it was widely accepted that there wasn’t anything in it that directly impacted SMSFs and superannuation in general. Our brethren & sistren that work in tax, however, have had their hands full since the budget, getting their heads around the changes to capital gains tax and negative gearing.

Even on budget night and the immediate days that followed, there were those that questioned whether the proposed changes would survive unchanged or whether a deal was going to be required to get the necessary support/numbers in the Senate. The topic of limited recourse borrowing arrangements (LRBAs) being the possible sacrificial lamb came up quickly, as it was no secret that the Greens have wanted a ban on SMSFs borrowing for some time.

On Tuesday 23 June 2026, in separate press conferences, both the Government and Greens announced that support for the tax reform will come from the Greens, in exchange for extending the inquiry into the NDIS and ‘closing the loophole’ on SMSFs borrowing to invest in residential property. Amendments, in relation to the changes associated with LRBAs, were tabled in the Senate on Thursday 25 June 2026. The amendments were passed by a majority vote before the amended Bill returned to the House of Representatives for consideration. With the weight of numbers, passage through the Lower House occurred with minimum fuss. The Bill then received Royal Assent on Friday 26 June 2026. The importance of knowing this will be highlighted later in this article.

What does this mean going forward?

Interestingly, when the changes to LRBAs were announced, reference was made to ‘housing’ and ‘residential property’. The final wording of the Act that has become law introduces a further element to the meaning of an ‘acquirable asset’ under subsection 67A(2) SIS Act to include; for an asset that is real property, the asset is business real property (within the meaning of section 66 of the SIS Act).

Section 66 defines business real property (BRP) as property that is wholly and exclusively used in one or more businesses. It does not differentiate between the zoning of residential and non-residential property but rather focuses on the use of the property. Although a simple view of the rule change is that LRBAs will continue to be available for commercial properties but will be banned for residential properties, it isn’t as clear cut as that. Example 21 of SMSFR 2009/1 highlights this perfectly, with a residential property being used to conduct a doctor’s surgery business satisfying the definition of BRP. To potential confuse things further, assuming the property is capable of being occupied as a residential dwelling, it will likely be considered a residential premises under the GST Act. This just highlights an alternative option to define a property by its zoning or intended use may have been more appropriate, rather than relying on the definition of BRP.

How this ‘doctor’s surgery’ or similar cases are classified going forward, purely from an LRBA perspective will be interesting to watch unfold. However, putting aside related party loans, it may be the commercial lenders that have some say in the space. That is, will they change their lending policies to restrict lending against any property that is zoned residential, regardless of use?

On the flip side, a commercial property should not automatically be considered BRP without consideration to how the property is being used, i.e., mixed use properties or vacant commercial premises. These two examples are also covered in SMSFR 2009/1.

Such examples may be outliers in the grand scheme of things, and it would be expected that the intention of the policy will come to the fore and restrict lending for most, if not all, residential properties going forward.

Other considerations

The rules will only apply on a prospective basis, with current arrangements being grandfathered. Further to this, these new provisions will only commence from the 45^th day after the Act received Royal Assent. With Royal Assent being received on 26 June 2026, the clock is ticking, and Monday 10 August 2026 will herald in the start of the new rules. That is, to be grandfathered, a borrowing arrangement needs to be in existence prior to this date (see below for further details on acquisitions that may be ‘mid-stream’).

This will not prevent trustees from refinancing existing arrangements from 10 August 2026. The refinancing of arrangements that were entered into prior to the commencement of these provisions will continue to be allowed.

Another consideration will be for those arrangements connected to a property that may have been acquired under an arrangement/contract prior to 10 August, but settlement not occurring until either on or after this date. This possibility has been considered in the Act, and such situations may continue to be finalised under the existing rules, without consideration to the ‘ban on borrowing for residential properties’. This may give some comfort to those that have purchased a residential property ‘off-the-plan’ that may not be completed until 10 August or after.

However, if it was known that borrowing was going to be required, it’s not unreasonable to assume that pre-approval would have been sought before entering into a contact to acquire a property off-the-plan. It is worth noting that pre-approval is no guarantee final approval will be given. One issue that may arise, as a result of these changes, is whether it will impact on the lenders who choose to play in the SMSF/LRBA space. That is, lenders may change their business models and/or terms and conditions and no longer provide lending to SMSFs against residential properties. This could prove problematic for SMSFs relying on obtaining a loan prior to settlement.

Clients that may be in the process of acquiring a residential property (or should I say a non-BRP) via an LRBA may want to reach out to their lender/broker to discuss whether these changes will impact on them or not. If they do adversely affect your clients, they may also wish to contact their lawyer/conveyancer handling the purchase to understand the implications and available options should the acquisition be in jeopardy due to the legislative changes.

Upcoming events        

The ban on residential property LRBAs will be further covered in our upcoming webinar on 15 July 2026, “SMSF Year Ahead 2026–27: Readiness and Priorities” to be presented by Jason Hurst, Technical Superannuation Adviser, Accurium. You can purchase this as a stand-a-lone webinar or as part of our July – September 2026 quarterly bundle of SMSF education webinars.