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Limited recourse borrowing arrangements (LRBAs) have long enabled self-managed superannuation funds (SMSFs) to borrow to acquire property. But, from 10 August 2026, an SMSF will only be able to acquire property if it qualifies as business real property. In simple terms, this means the property must be used wholly and exclusively in one or more businesses.
For SMSF trustees, particularly those considering property as part of their retirement strategy, this limits the types of properties that may be purchased using borrowed funds.
So, what does this mean in practice, and what should you consider before making your next SMSF property investment?
What counts as business real property?
Broadly, business real property is an eligible interest in real property that is used wholly and exclusively in one or more businesses. Importantly, that business does not have to be operated by the SMSF itself. The rules focus on how the property is actually used, rather than simply whether it looks residential or commercial, or how it is zoned.
For example, a house used exclusively as a medical practice could potentially qualify as business real property, despite originally being constructed as a residential property.
Mixed-use properties can be more complicated. A building with a shop downstairs and an apartment used as a residence upstairs, for example, is unlikely to meet the requirement because the entire property is not being used wholly and exclusively for business purposes.
Ultimately, whether a property qualifies will depend on its particular circumstances and how it is being used.
Can an SMSF still borrow to buy residential property?
For most trustees, the practical answer is no when it comes to an ordinary residential investment property under a new LRBA.
However, it is the property's use that matters.
A residential-style property used wholly and exclusively for business purposes could potentially qualify. On the other hand, simply renting a residential property to tenants will not necessarily mean it is being used in a business.
This makes it important to look beyond the type of property and consider the nature and scale of the activities taking place there.
The property needs to remain business real property under SMSF property rules.
There is another important consideration for trustees: meeting the test at the time of purchase isn't enough.
The property must qualify as business real property when the LRBA is entered into and continue to qualify for as long as the borrowing arrangement remains in place.
For example, if the way the property is used changes while the loan is still outstanding, the SMSF could potentially fall outside the borrowing rules.
Trustees therefore need to think beyond the initial purchase and consider how the property may be used over the entire life of the loan.
What happens to existing SMSF property loans under limited recourse borrowing arrangements?
If your SMSF already has an LRBA in place, there are transitional rules to consider. The legislation provides protection for the maintenance or refinancing of an existing borrowing.
Transitional treatment may also apply where a binding contract to acquire the property was entered into before 10 August 2026, even where settlement or the LRBA itself occurs after that date.
However, significant changes to an existing contract could result in it being treated as a new arrangement under the law, so it is important to seek advice from accountants and financial advisors before varying an existing property transaction.
Considering property through your SMSF investment structure?
These changes don't mean SMSFs can no longer borrow to invest in property. They do, however, mean trustees need to be much more careful about what they buy and how the property will be used.
This is particularly important if you're considering residential property, mixed-use premises or a property that may have any private or domestic use.
Before signing a property contract, it's worth establishing whether the property is likely to satisfy the business real property requirements and whether borrowing through your SMSF remains appropriate for your broader retirement strategy.
Getting advice early can help you understand the rules, identify potential compliance issues and ensure the investment fits with your fund's objectives before you're committed to the purchase.
The key takeaway.
LRBAs have not been abolished, but the rules around what property can be acquired under a new arrangement have tightened. From 10 August 2026, real property acquired under a new LRBA must generally qualify as business real property and continue to meet that requirement for the life of the loan.
Considering an SMSF property purchase? Contact our team before you sign a contract, we'll help you check whether the property qualifies and whether borrowing suits your retirement strategy
Catherine Parker is an Associate at Cutcher & Neale with nearly two decades of experience in superannuation and retirement planning. Known for her approachable and caring style, she helps clients gain clarity and confidence in their retirement journey by simplifying complex superannuation strategies.