Proposed Ban on SMSF Residential Property Borrowing: What Trustees Need to Know

The Federal Government has announced proposed changes to Self-Managed Superannuation Fund (SMSF) borrowing rules that could significantly impact trustees considering residential property investment through their SMSF.

Under the proposal announced on 23 June 2026, SMSFs would no longer be permitted to establish new Limited Recourse Borrowing Arrangements (LRBAs) to acquire residential property. Existing arrangements are expected to be grandfathered and allowed to continue.

The proposed reforms form part of a broader housing and taxation package and are expected to commence 45 days after Royal Assent.

For trustees, the key question is not whether SMSFs can continue to invest in property, but whether borrowing to acquire residential property will remain available after the legislation commences.

Quick Summary

What Is Changing?

The proposed reforms focus specifically on borrowing arrangements used to acquire residential property.

Importantly, the proposal does not prevent SMSFs from owning residential property. It only affects the ability to establish new borrowing arrangements to acquire residential property.

Expected Timeline

The legislation has been announced but has not yet completed the parliamentary process.

*Based on current parliamentary timing and the proposed 45-day commencement period, iCare Super expects the reforms could commence around mid-August 2026. The final commencement date will depend on the timing of Royal Assent and any amendments made during the legislative process.

What Is an SMSF LRBA?

A Limited Recourse Borrowing Arrangement (LRBA) allows an SMSF to borrow money to acquire a single asset, most commonly residential or commercial property.

The structure generally involves a separate holding trust (often referred to as a bare trust) that holds legal title to the property while the SMSF holds the beneficial interest.

Lenders generally have recourse only to the acquired property rather than other SMSF assets.

Why Is the Government Proposing the Change?

The proposed reforms form part of a broader housing and tax package negotiated between the Government and the Greens.

The stated policy objectives include:

• Reducing leverage within the superannuation system.
• Addressing housing affordability concerns.
• Limiting the use of borrowed superannuation funds for residential property investment.
• Responding to recommendations from previous policy reviews and regulators.

Borrowing within superannuation has been subject to regulatory scrutiny for many years, including recommendations made by the Financial System Inquiry (Murray Review) and concerns raised by the Council of Financial Regulators.

Who Is Affected?

The impact depends on the SMSF’s current position.

SMSFs With Existing Residential Property Loans

Current announcements indicate that existing residential property LRBAs will be grandfathered.

This means:

• Existing loans can continue.
• Existing properties can remain in the SMSF.
• Existing repayment arrangements remain unchanged.
• Existing tax concessions continue to apply.

SMSFs Holding Residential Property Without Borrowing

Trustees who already own residential property outright within their SMSF are not expected to be affected.

SMSFs Planning to Borrow for Residential Property

Trustees considering a future residential property purchase using borrowing may be significantly affected.

If the proposal proceeds, new residential property borrowing arrangements will no longer be available after commencement.

Can Existing SMSF Property Loans Be Affected?

Existing residential property LRBAs are expected to be protected under grandfathering provisions.

However, trustees should exercise caution before making significant changes to an existing arrangement.

The final legislation and any future ATO guidance will determine how these situations are treated.

As a precaution, trustees should obtain professional advice before refinancing or restructuring an existing SMSF property loan.

What About Commercial Property Borrowing?

One of the most important aspects of the proposal is what it does not change.

Commercial property borrowing arrangements are not currently affected.

This means SMSFs may continue to acquire eligible commercial properties such as:

• Offices
• Warehouses
• Retail premises
• Industrial facilities
• Business premises leased to related businesses under existing SMSF rules

For many business owners, commercial property strategies remain available under the current proposal.

What Trustees Should Consider Before the Expected Commencement Date

Trustees considering property investment through their SMSF should review their circumstances carefully.

Key considerations include:

• Whether an SMSF property strategy remains appropriate.
• Whether borrowing is consistent with the fund’s investment strategy.
• Whether trust deeds and governing rules remain current.
• Whether bare trust documentation is properly established.
• Whether proposed property acquisitions may be impacted by legislative timing.
• Whether professional advice should be obtained before proceeding.

As the proposed commencement date may be only weeks away, trustees should avoid delaying important decisions until the final stages of the legislative process.

What Has Not Changed?

The current proposal does not affect:

• Existing residential property loans.
• Residential properties already owned outright by SMSFs.
• Commercial property borrowing arrangements.
• SMSF contribution rules.
• Existing SMSF tax concessions.
• Pension phase tax exemptions.
• SMSF investment flexibility.

SMSFs continue to provide trustees with a wide range of investment opportunities within the existing superannuation framework.

Frequently Asked Questions

Can my SMSF still buy residential property?

Yes. SMSFs can continue to purchase residential property using available fund assets. The proposed changes relate to borrowing rather than property ownership.

Will I need to sell my SMSF property?

No. Existing residential properties held within SMSFs are not expected to be affected by the proposed reforms.

Will my existing SMSF property loan be cancelled?

No. Existing residential property LRBAs are expected to continue under grandfathering provisions.

Can I refinance my existing SMSF property loan?

Trustees should seek professional advice before refinancing. The treatment of refinanced arrangements may depend on the final legislation and future regulatory guidance.

Can my SMSF still borrow to buy commercial property?

Based on current announcements, commercial property borrowing arrangements are not affected.

Do the changes affect SMSF tax concessions?

No changes to SMSF tax concessions have been announced as part of these reforms.

When are the changes expected to start?

The reforms are proposed to commence 45 days after Royal Assent. Based on current timing, commencement may occur around mid-August 2026, although the final date has not yet been confirmed.

How iCare Super Can Assist

iCare Super continues to monitor developments affecting SMSF trustees and property investment strategies.

We can assist with:

• SMSF administration
• Existing LRBA administration
• Bare trust arrangements
• SMSF compliance obligations
• Trustee responsibilities
• Property-related SMSF reporting
• Ongoing fund administration

If you have questions regarding how the proposed SMSF residential property borrowing changes may affect your fund, please contact the iCare Super team.

Disclaimer

This article contains general information only and is provided for educational purposes. It does not take into account your personal objectives, financial situation or needs and does not constitute financial, legal, taxation or investment advice.

SMSF trustees should seek independent professional advice before making decisions regarding borrowing, property investment, or changes to existing SMSF arrangements.

While care has been taken to ensure the information is current at the time of publication, legislative details may change as the Bill progresses through Parliament and receives Royal Assent. iCare Super does not accept responsibility for any loss arising from reliance on this information.