Borrowing inside a self-managed super fund (SMSF) to buy a rental property has been part of the retirement planning conversation for more than a decade. From 10 August 2026, that option has been sharply narrowed, and the type of property your fund can borrow money to buy is now more limited.
What has changed
SMSFs are generally prohibited from borrowing except in limited circumstances. One of th ose exceptions is borrowing under a limited recourse borrowing arrangement (LRBA) to purchase certain assets. Super laws governing LRBAs have changed, effective 10 August 2026, so that when an LRBA is used to purchase real property, it must now also be “business real property” as defined in super legislation. Business real property, among other conditions, must be used wholly and exclusively in one or more businesses.
An ordinary residential rental or holiday property owned by the SMSF will generally not qualify as business real property – although some exceptions may apply. An SMSF can still use an LRBA to purchase allowable assets other than real property, such as listed shares. And an SMSF may still purchase real property without borrowing, as long as all other super laws in relation to the purchase are met.
Who this affects
The change applies to regulated super funds, including SMSFs, planning a geared purchase of real property. The use of the property now determines whether the LRBA is permitted, so it’s important to check ATO guidance well before you sign contracts.
The date you need to know
Timing is critical: The new rule applies to LRBAs entered into on or after 10 August 2026. LRBAs entered into before 10 August 2026 are not subject to this new business real property condition but must continue to comply with all other super and LRBA requirements.
Where an LRBA is entered into before 10 August 2026, settlement on the property purchase may occur before or after 10 August 2026. Refinancing an LRBA that existed before 10 August 2026 isn’t affected.
ATO guidance is being refreshed
A range of the ATO’s published material on LRBAs is being updated to reflect the amended law. This includes its rulings on how the key concepts apply and on the meaning of business real property, along with its guidance on arm’s length borrowing terms and on how contraventions of the super rules are rectified.
The ATO has published information about the legislative change and is reviewing relevant guidance. The ATO has also placed a notice on SMSFR 2009/1 (business real property ruling) confirming it is being reviewed and updated. Until that material is settled, care should be taken with any new borrowing proposal.
Where to from here?
If you’re contemplating a geared purchase of real property in an SMSF, several questions now matter: Was the LRBA entered into before or after 10 August 2026? Does the property genuinely meet the business real property test? Are the borrowing terms at arm’s length? Does the transaction meet all other super laws? (eg sole purpose test, investment strategy etc).
Forgetting to address these questions can put the fund in breach of the super rules, with consequences for the trustees as well as the fund. Speak with your professional tax adviser or financial adviser before your fund enters into any new borrowing arrangement, so the proposed purchase can be assessed against the amended rules and against your broader retirement strategy.