A rule change that took years to arrive landed quickly when it did. From 10 August 2026, the path that allowed an SMSF to borrow against residential property through a Limited Recourse Borrowing Arrangement closed permanently for new arrangements. Brokers who specialise in SMSF lending are already reporting a reorientation of enquiries toward commercial property, and the reasons why are worth understanding clearly.
What actually changed, and what did not
The Treasury Laws Amendment (Tax Reform No. 1) Act 2026 received Royal Assent on 26 June 2026, following an agreement between the Government and the Australian Greens. The new rules commenced 45 days later, on 10 August 2026. From that date, SMSFs can no longer enter into new LRBAs to purchase residential property.
Existing LRBAs are fully grandfathered. Contracts signed (exchanged) before 10 August 2026 are protected, even if settlement occurs after that date. An accepted offer or holding deposit without an exchanged contract does not carry this protection.
Commercial property LRBAs are completely unaffected by the August 2026 changes. SMSFs can still borrow to purchase business real property, which can be leased to related parties, such as the fund members' own business, at market rates. The property must qualify as "business real property" under section 66 of the Superannuation Industry (Supervision) Act. Commercial premises used wholly and exclusively in a business will generally meet that test, but not all non-residential property qualifies automatically. Mixed-use property, vacant land, or property with private or residential use may need careful review before an LRBA is entered into.
Residential property can still be purchased using cash reserves of the SMSF only, so for funds that are cashed up and can buy without borrowings, the change in laws will have no real effect. A unit trust structure is another avenue worth discussing with an SMSF specialist accountant, where the fund invests equity into a unit trust that holds the property and carries the borrowing separately.
What commercial LRBA lending looks like in practice
Commercial LRBA lending has always operated differently to residential, and the terms reflect a higher level of lender scrutiny.
Most specialist lenders in 2026 require a minimum deposit of 25% to 35% of the property's value, corresponding to an LVR of 65% to 75%. Beyond the deposit, the fund must also demonstrate sufficient liquidity to cover purchase costs like stamp duty, legal fees, and a cash buffer for ongoing expenses.
Lenders are now scrutinising post-settlement liquidity more than ever. It is no longer enough to have the deposit; the fund must demonstrate a cash buffer, often 5 to 10% of the asset value, to cover unforeseen expenses and maintain LRBA integrity.
SMSF loans carry a premium over standard investment property rates, typically 1% to 2% higher, reflecting the complexity and limited recourse nature of the loan. Rate levels change frequently and should always be confirmed with a broker who specialises in SMSF lending.
One important structural point: the commercial LRBA still requires a single acquirable asset and a correctly drafted bare trust. The loan is held in a bare trust, with the SMSF as the beneficial owner, and the asset cannot be improved beyond what was agreed at the time of purchase without additional compliance steps. Your SMSF accountant and solicitor need to be across these requirements before any loan application is submitted.
The tax position inside the fund
The reason SMSF property ownership attracts sustained interest is the tax treatment of income and gains inside the fund.
During the accumulation phase, the fund's net income, which includes rental income, is generally taxed at a flat 15% rate. A capital gain is treated as income for tax purposes and taxed at the same 15% rate. If the asset is held for more than 12 months, any realised capital gain is eligible for a discount of one-third, resulting in an effective tax rate of 10%.
The 2026-27 Federal Budget replaced the 50% CGT discount for individuals and trusts with CPI indexation, but SMSFs remain explicitly exempt, retaining their 33.33% discount on long-term assets.
Once members start a retirement-phase pension, the entire fund, or the allocated portion, becomes tax-exempt. There is no CGT discount needed because the effective rate is zero on sale proceeds, rental income, or dividends. This applies up to the Transfer Balance Cap, which changes each financial year and should be confirmed with a financial adviser or the ATO (ato.gov.au).
Note also that Division 296 tax came into effect from 1 July 2026 and applies additional tax on super fund earnings, including realised capital gains, for members with very large super balances. Whether this affects your fund is a matter for your SMSF specialist accountant.
An illustrative scenario
Consider a small business owner with an SMSF that holds $600,000 in assets. The fund takes out a commercial LRBA to purchase the business premises for $900,000, contributing a $270,000 deposit (30%) from the fund, with a $630,000 loan at roughly 65 to 70% LVR. The business leases the premises back from the fund at a documented market rate under a formal lease agreement.
During the accumulation phase, the rental income received by the fund is taxed at 15%. When the property is eventually sold after more than 12 months, the effective CGT rate is 10% in accumulation phase, or potentially zero if members have moved into pension phase by that time. The rent that was previously flowing to a third-party landlord now flows into the fund's own balance sheet.
This is an illustrative scenario only, not a projection. Property values, rental income levels, and individual circumstances vary significantly. An independent rental appraisal, a licensed broker, and an SMSF specialist accountant should all be involved before any figures are used for planning.
Practical next steps
If the shift in SMSF lending rules affects how you are thinking about property inside super, here are three things worth doing now:
- Review your fund's position with an SMSF specialist accountant. Check whether your fund's investment strategy acknowledges the legislative change, confirm any existing LRBA's grandfathered status, and discuss whether commercial property fits the fund's objectives and liquidity requirements.
- Speak with a broker who specialises in SMSF lending. Commercial LRBA applications are assessed very differently to standard investment loans. A broker with specific SMSF experience can compare lender appetite, LVR terms, and serviceability criteria before you commit to a property search.
- Get an independent property and rental appraisal. For any commercial property the fund is considering, an independent valuation and rental appraisal from a qualified valuer is essential. Rent must be at arm's length and supported by documentation to satisfy the ATO's rules on non-arm's-length income.
If you want to understand how EWC sources commercial investment properties and coordinates the property and finance process, visit our services page or book a free call to talk through your situation. Further reading on SMSF structures and property finance options is available in our insights section.
General information only, not personal financial advice. Speak with a licensed adviser before acting.