SMSF Limited Recourse Borrowing Arrangements: What Changed in 2026?

For many years, Limited Recourse Borrowing Arrangements (LRBAs) have allowed self-managed super funds (SMSFs) to borrow money to invest in assets such as property.

However, significant changes came into effect in 2026.

From 10 August 2026, new SMSF borrowing arrangements used to acquire real property are restricted to business real property.

This means SMSFs can no longer enter into a new LRBA to borrow money to purchase ordinary residential investment property.

The change is particularly important for SMSF trustees who were considering using superannuation to purchase residential property.

However, there is some positive news:

• Existing qualifying LRBAs are generally not affected.
• SMSFs can still use LRBAs for eligible business real property.

What Is a Limited Recourse Borrowing Arrangement (LRBA)?

A Limited Recourse Borrowing Arrangement is a special borrowing structure allowed under superannuation rules.

Normally, SMSFs are prohibited from borrowing money. However, Section 67A of the Superannuation Industry (Supervision) Act 1993 provides a limited exception that allows an SMSF to borrow money to acquire a single acquirable asset, subject to strict requirements.

Under an LRBA:

1. The SMSF borrows money from a lender.
2. The borrowed funds are used to purchase an eligible asset.
3. The asset is held in a separate holding trust.
4. The SMSF receives investment returns from the asset.
5. The lender’s rights are generally limited to the asset purchased under the arrangement.

The limited recourse feature is important because if the loan defaults, the lender generally cannot access the SMSF’s other assets.

Instead, the lender’s recovery is limited to the asset purchased under the LRBA.

What Changed From 10 August 2026?

The key change is not the removal of LRBAs completely.

Instead, the legislation now restricts new LRBAs involving real property.

For new arrangements, where the asset being acquired is real property, it must satisfy the definition of business real property under superannuation legislation.

Residential Property: What Is No Longer Allowed?

From 10 August 2026:

An SMSF cannot establish a new LRBA to borrow money to purchase an ordinary residential investment property.

This includes the traditional strategy of:

• Using SMSF contributions as a deposit
• Borrowing through an LRBA
• Purchasing an investment house, apartment or similar residential property

For trustees who were planning to establish an SMSF specifically to borrow and purchase residential property, this strategy will need to be reconsidered.

Business Real Property: What Is Still Allowed?

SMSFs can still potentially use an LRBA to acquire eligible business real property.

Business real property generally refers to land and buildings used wholly and exclusively in one or more businesses, subject to the requirements of superannuation legislation.

Examples may include:

• Commercial premises
• Business facilities
• Property used by a business operation

However, simply calling a property “commercial property” is not enough.

The property must satisfy the legal definition of business real property under the SIS Act.

What Happens to Existing SMSF Property Loans?

This is one of the most important questions for SMSF trustees.

The good news:

Existing qualifying arrangements are generally protected.

The legislation provides transitional protection for certain arrangements entered into before commencement, including existing borrowings and qualifying refinancing arrangements.

The changes are prospective and do not automatically affect existing SMSF borrowing arrangements.

If an SMSF already has a compliant LRBA over residential property:

• The property does not need to automatically be sold.
• The loan does not need to automatically be repaid.

However, the arrangement must continue complying with:

• Superannuation legislation
• Loan requirements
• SMSF investment strategy

Can an SMSF Still Buy Residential Property Without Borrowing?

Yes.

The new rules do not prevent an SMSF from purchasing residential investment property using available cash.

The restriction applies specifically to new LRBAs involving non-business real property.

Normal SMSF investment and compliance requirements still apply.

Can an SMSF Still Borrow to Buy Business Real Property?

Potentially, yes.

The 2026 changes preserve the ability to use an LRBA for eligible business real property.

This may be particularly relevant for business owners who operate their business from premises owned by their SMSF.

For example:

An SMSF may potentially acquire a commercial property and lease it to a related business, provided:

• The property satisfies the business real property requirements.
• The arrangement complies with superannuation rules.
• The lease is conducted on appropriate commercial terms.

Professional advice is essential because incorrectly structured arrangements can create significant compliance issues.

Why Was the LRBA Rule Changed?

The Government introduced these restrictions due to longstanding concerns about:

• Leverage within superannuation
• Concentration risk
• Risks associated with SMSFs borrowing to invest in residential property

What Does This Mean for SMSF Investors?

For anyone considering SMSF property investment, the change is significant.

Before 10 August 2026, an SMSF could potentially use an LRBA to purchase eligible residential investment property.

That option is no longer available for new arrangements.

Investors may need to consider alternative ways to gain property exposure through superannuation, including:

• Property-related investments
• Eligible business real property
• Other investment options available through super funds

What About Borrowing to Buy Shares?

The 2026 changes focus specifically on real property.

They do not abolish all LRBA arrangements.

Certain borrowing arrangements involving other eligible assets, such as some shares or managed investments, may continue where all Section 67A requirements are satisfied.

Therefore, describing the changes as an:

“SMSF borrowing ban”

would not be accurate.

The more accurate description is:

New SMSF LRBAs involving real property are restricted to business real property, while eligible LRBAs for certain other assets may continue.

The Risks of SMSF Borrowing Haven’t Disappeared

Even where borrowing remains available, trustees must understand the risks.

Borrowing increases investment exposure.

If an investment increases in value:

• Potential returns may increase.

However, if the investment falls:

• Losses may also be magnified.

SMSFs with borrowing arrangements must also manage:

• Loan repayments
• Interest costs
• Property expenses
• Insurance
• Accounting fees
• Audit costs
• Administration expenses

The fund must maintain sufficient liquidity to meet ongoing obligations.

What Should SMSF Trustees Do Now?

If you already have an LRBA, do not assume immediate action is required simply because the law has changed.

Instead, review:

• Original loan documents
• Acquisition documents
• Compliance status
• Investment strategy
• Property use
• Loan balance
• Interest rate
• Cash flow position
• Refinancing requirements
• Long-term retirement objectives

If you were planning a new LRBA to purchase residential property, the strategy needs to be reconsidered.

For any new LRBA involving real property, ensure:

• The property qualifies as business real property.
• The borrowing structure satisfies SMSF requirements.

Don’t Restructure an LRBA Without Advice

One of the biggest mistakes SMSF trustees can make is assuming an LRBA can be easily changed after establishment.

Incorrectly structured SMSF property arrangements can be difficult and expensive to unwind and may potentially require the underlying asset to be sold.

Before:

• Refinancing an existing LRBA
• Changing ownership structure
• Changing property use
• Acquiring another property

seek specialist SMSF, tax and legal advice.

The Bottom Line

The 2026 changes do not mean SMSFs can no longer borrow.

Instead:

• From 10 August 2026, new LRBAs involving real property are restricted to business real property.
• Existing qualifying arrangements are generally protected.
• Eligible borrowing arrangements for business real property and certain other assets can continue.
• SMSFs may still purchase residential property without borrowing, subject to normal SMSF rules.

For SMSF trustees, the key is understanding how the rules apply to their specific circumstances rather than reacting to headlines about an “LRBA ban”.

Frequently Asked Questions

Can SMSFs still borrow money in 2026?

Yes.

LRBAs have not been abolished. However, new LRBAs involving real property are restricted to eligible business real property from 10 August 2026.

Can my SMSF still borrow to buy residential property?

No, not under a new LRBA entered into from 10 August 2026.

Existing qualifying residential property LRBAs are generally protected.

What is business real property?

Business real property is generally property used wholly and exclusively in one or more businesses, subject to SIS Act requirements.

What happens to my existing SMSF property loan?

Existing qualifying arrangements are generally unaffected because the 2026 amendments operate prospectively.

Can an SMSF borrow to buy business real property?

Can an SMSF borrow to buy business real property?

Potentially yes.

However, the property must satisfy the statutory business real property test, and all other SMSF rules must be followed.

Can SMSFs still use LRBAs for shares?

Potentially yes.

Certain eligible asset borrowing arrangements may continue if they satisfy Section 67A and other superannuation requirements.

Can my SMSF still buy residential property with cash?

Yes.

The restriction applies to new LRBAs. It does not prevent an SMSF from purchasing residential property using available funds, provided normal SMSF rules are followed.

Need Help Reviewing Your SMSF Strategy?

The 2026 LRBA changes may affect how SMSF trustees approach property investment and borrowing strategies.

If you already have an SMSF loan or are considering a new investment structure, Investax can help review your position and ensure your strategy aligns with the current rules.

Contact Investax to discuss your SMSF strategy and understand your available options.

Source & Disclaimer

This article is based on the Australian Government’s September 2026 Exposure Draft legislation and explanatory materials released for consultation on 3 September 2026.

The Exposure Draft is not yet law and may change following consultation or the legislative process.

General Advice Warning

The material on this page and on this website has been prepared for general information purposes only and not as specific advice to any particular person. Any advice contained on this page and on this website is General Advice and does not take into account any person’s particular investment objectives, financial situation and particular needs.

Before making an investment decision based on this advice you should consider, with or without the assistance of a securities adviser, whether it is appropriate to your particular investment needs, objectives and financial circumstances. In addition, the examples provided on this page and on this website are for illustrative purposes only.

Although every effort has been made to verify the accuracy of the information contained on this page and on our website, Investax Group, its officers, representatives, employees and agents disclaim all liability [except for any liability which by law cannot be excluded), for any error, inaccuracy in, or omission from the information contained in this website or any loss or damage suffered by any person directly or indirectly through relying on this information.