The SMSF residential lending change, what still works from 10 August 2026

From 10 August 2026, any limited recourse borrowing arrangement (LRBA) an SMSF enters into to acquire real property can only be used to buy business real property. In plain English: your fund can no longer borrow to buy a residential investment property. The ATO published its guidance on 28 July 2026, and it is narrower than most of the panic online suggests.

What the law actually says

• New LRBAs for real property must acquire business real property: land and buildings used wholly and exclusively in one or more businesses.
• The asset must be business real property at the time the LRBA starts, and stay that way for the entire life of the loan.
• The rule applies to every lender: bank, non-bank or related party. Who lends the money is irrelevant.
• Nothing else changed. Bare trusts, single acquirable asset, limited recourse mechanics and the other exceptions to the borrowing prohibition are untouched.
• Primary production land can still qualify with a dwelling on it, if the dwelling sits on no more than 2 hectares and the main use of the whole property isn’t domestic.

What still works inside an SMSF

The maths changed, not the goal

The old model was leverage: a $200k balance controlling a $500k residential asset. The new model for residential is liquidity, you need the whole purchase price in the fund. For most members that shifts the timeline out, or shifts the asset across to commercial.

Indicative only. Assumes 30% deposit plus duty and costs on the old residential LRBA, full price plus duty and costs on a cash purchase, and a 35% deposit plus duty, costs and a liquidity buffer on commercial security.

Business real property, the part people underestimate

Business real property is the standout for business owners. The fund can buy the premises your company trades from, from you, at market value, and lease it back at market rent. Rent becomes a deductible business expense and lands in a 15% (or 0% in pension phase) environment instead of your marginal rate.

The catch is the ongoing test. If the tenant leaves and the property sits vacant long term, or gets converted to residential use, the asset stops being business real property and the fund has failed to maintain the borrowing properly. Under the old rules a vacancy was a cash-flow problem. Under the new rules, with a loan attached, it is a compliance problem. Lease continuity now belongs in the buying decision, not the property management conversation.

Five routes that still get residential into super

The ban removed one funding method, not the asset class. These are the routes we still see working, in rough order of how often they apply. Each one has a compliance edge that decides whether it is a strategy or a 45% tax event, so read the caveats as carefully as the upside.

1. Buy outright, and accelerate the fund to get there

The plainest route. No borrowing, no bare trust, no lender. The work is getting the cash into the fund faster than the market moves:

• Carry-forward concessional contributions: if your total super balance was under $500,000 at the previous 30 June, you can use unused concessional cap from the previous five financial years in one hit.
• Bring-forward non-concessional: under age 75 and under the balance thresholds, up to three years of non-concessional cap can be brought into a single year.
• Downsizer contributions: from age 55, up to $300,000 each per member from the sale of a qualifying home, outside the normal caps and not counted against the work test.
• Pool members: an SMSF can have up to six members. A couple plus adult children, or two couples, reach a cash purchase price far sooner than one member does.
• Rollovers: consolidating APRA-fund balances into the SMSF is usually the single biggest lever, and the one people leave until last.

The trade-off is liquidity. A fund that spends its entire balance on one house has no cash for the audit, the insurance, an untenanted quarter, or a member hitting pension phase and needing a minimum drawdown. We generally want the property to be well under the total fund balance, not equal to it.

2. Grandfathered loans and pre-cut-off contracts

If the LRBA was entered into before 10 August 2026, it stays. It can be maintained and refinanced for the same asset, with the same or a new lender. If the fund exchanged a binding contract before the cut-off, the purchase is unaffected even where finance and settlement land later. What breaks this is materially varying the contract or swapping the asset, so treat any renegotiation as an advice event.

3. Tenants in common with the members personally

The fund buys a share of the property outright, say 40%, and the members buy the other 60% in their own names, borrowing personally. The leverage sits outside super where it is still allowed, and the fund holds an ungeared interest in a real asset.

• The fund’s share must be unencumbered. No mortgage, no charge, no guarantee over the fund’s interest for the member’s personal loan. Lenders will ask; the answer is no.
• Everything must be at arm’s length: purchase price by valuation, expenses and rent split strictly by ownership share, documented in a co-ownership agreement.
• It is still residential property, so no member or relative can live in it or rent it, at any price.
• Exits are the weak point. Selling one share of a house is harder than selling a house, so agree the exit mechanics in writing on day one.

4. A non-geared unit trust under SIS Regulation 13.22C

A related unit trust can own residential property and the SMSF can hold units in it without those units counting as in-house assets, provided the trust satisfies Regulation 13.22C for its entire life. The practical attraction is drip-feeding: the fund buys more units as contributions arrive, so ownership shifts into super over time.

• The trust cannot borrow. At all. Not even a small overdraft or a related-party loan.
• No charge over any trust asset, no lease of residential property to a related party, no interest in another entity, and no assets acquired from a related party other than business real property.
• The breach test is one-way. Trip a condition once and the units become in-house assets permanently, under Regulation 13.22D. There is no cure.

5. A genuinely unrelated unit trust or syndicate that borrows

If the trust is not a related party of your fund, the fund’s units are not in-house assets, and the trust itself can borrow because the borrowing prohibition applies to the fund, not to every entity it invests in. This is the structure people are asking about when they say “two mates, one trust, 50/50”.

Two other things to price in on this route. The trust’s income must be genuinely arm’s length or the fund’s share is taxed as non-arm’s length income at 45%. And the fund is not really getting geared residential exposure of its own; it is co-investing alongside someone whose personal borrowing capacity lifts the purchase price. That is a legitimate strategy, but it is not the old LRBA in a new wrapper, and it should not be sold to you as one.

Where this leaves most trustees

• Mid-purchase right now: check your contract date and your LRBA date against 10 August 2026. That single fact decides everything.
• Fund under roughly $400k: residential inside super is likely off the table for now. Build the balance, or run the strategy outside super where leverage still exists.
• Business owner: this change makes buying your own premises through the fund relatively more attractive, not less.
• Already geared into residential: do nothing reactive. You are grandfathered, and refinancing is still open to you.
• Set up an SMSF purely to gear into residential: revisit the whole plan. The reason the fund exists has changed.

Sources: ATO, Changes to limited recourse borrowing arrangements (published 28 July 2026); SMSFR 2009/1 (business real property); SMSFR 2012/1 (LRBA key concepts). General information only, not personal financial, tax or legal advice.