Existing SMSF residential loans grandfathered, refinancing still permitted, no forced sales

What the ban does and does not do

A lot of SMSF trustees have read the headlines and assumed they need to act urgently on their existing loan. Most do not.

From 10 August 2026, SMSFs can no longer enter into new LRBAs to acquire residential property. The change formed part of the agreement reached between the Federal Government and the Greens to secure passage of the Government's broader tax reform package on 26 June 2026. The changes relate specifically to borrowing arrangements and do not alter existing superannuation tax concessions.

Critically, the legislation draws a clear line between new arrangements and existing ones. Existing SMSF residential property loans are grandfathered, refinancing of existing residential property LRBAs remains permissible, and SMSFs may continue to use LRBAs to acquire eligible business real property. The ATO has released guidance on the changes, providing further information for SMSF trustees and industry participants.

What grandfathering actually means for your fund

For existing residential LRBAs, nothing changes at all. There is no forced sale, no LVR reset, no value trigger, and no compliance issue arising solely from the new legislation. You can continue servicing the loan, collecting rent, and managing the property as you always have.

The ATO's own guidance page (ato.gov.au) is explicit on what is protected:

• The changes do not apply if an SMSF exchanges a binding contract to acquire real property before 10 August 2026, even if the contract is settled or the LRBA is entered into on or after that date.
• The ATO's Limited Recourse Borrowing Arrangement Provisions page confirms that existing arrangements are grandfathered, meaning an LRBA entered into before 10 August 2026 continues under the existing rules for its full term.
• Refinancing is preserved: a borrowing under an arrangement entered into before commencement can be maintained or refinanced without triggering the new restriction.

Standard SMSF compliance obligations continue as normal. The sole purpose test, related-party rules, and in-house asset limits all still apply. Grandfathering protects the loan structure; it does not create any new exemptions from those ongoing obligations.

Refinancing: what is allowed and where the limits are

If your existing residential LRBA is on a rate that no longer looks competitive, you can shop around. You can refinance an existing residential LRBA, and the grandfathering applies to the arrangement, not the specific lender. The amendment specifically excludes "maintaining or refinancing a borrowing of money under another arrangement entered into before that commencement" from the new prohibition, which means you can move your existing LRBA to a different lender for a better rate without losing grandfathered status.

There are important limits on what a refinance can involve, however. Existing residential property LRBAs may be refinanced on substantially the same terms, but an arrangement involving a top-up, equity release, or a change to the underlying security may be treated as a new LRBA and therefore become subject to the new restrictions. The ATO considers refinancing an LRBA to mean entering into a new loan contract for the same asset, with the same or a new lender. Anything that goes further than that, including drawing additional funds against the property's equity, sits in materially different territory.

No cash-out is permitted in any case: borrowed money under an LRBA can only be applied to acquire the asset or refinance the existing borrowing, including accrued interest. Drawing extra funds against the property's equity for other purposes is not permitted. That rule predates the 2026 changes and continues to apply.

If you are considering a refinance, get written advice from an SMSF specialist accountant or licensed broker before proceeding. If you are considering refinancing or restructuring an existing LRBA, you should consider whether the proposed changes would inadvertently create a new arrangement subject to the new rules.

What still remains available for new SMSF property investment

The ban is specific to borrowing for residential property. Three paths remain open for funds that want to add property exposure.

1. Cash purchase of residential property. Residential property can still be purchased using cash reserves of the SMSF only, so for clients who are cashed up and able to buy without borrowings, the change in laws has no real effect.
2. New LRBA for business real property. Commercial property and share or unit parcels can still obtain finance under an LRBA, but only where the property satisfies the SIS Act definition of business real property. This will generally include commercial premises used wholly and exclusively in a business, but not all non-residential property will automatically qualify. Mixed-use property, vacant land, or property with private or residential use may need careful review before an LRBA is entered into.
3. SMSF unit trust structure for residential. For funds that want to hold a new residential property with some form of gearing, a separate unit trust structure may be worth discussing with an SMSF specialist. This is a different legal structure from an LRBA and has its own compliance considerations. It can also accommodate construction contracts, which a standard LRBA cannot. This is something to discuss in detail with a licensed adviser and SMSF specialist accountant before committing to any structure.

A worked example: Maria's fund

Maria set up an SMSF in 2021 and used an LRBA to purchase a two-bedroom townhouse in Adelaide for $580,000, borrowing $406,000. The fund is in accumulation phase. Rental income is taxed at 15% inside the fund, and if the property is eventually sold after more than 12 months of ownership, the effective CGT rate in accumulation phase is 10% (reflecting the one-third CGT discount available to complying super funds).

Maria's loan rate is currently above what she sees advertised by specialist SMSF lenders. Per the rules as they currently stand, she can approach a new lender and refinance the outstanding balance to a lower rate, with the same asset as security, on a principal and interest basis. What she cannot do is draw out a portion of the equity she has built up, use the property as security for a different loan, or change the underlying asset. She engages an SMSF-accredited broker to compare options across lenders still active in the space, and an SMSF specialist accountant to confirm the refinance does not inadvertently create a new arrangement.

Nothing about the August 2026 legislation requires her to sell, repay early, or restructure.

Three things to do now

1. Review your existing LRBA terms. Check the loan rate, remaining term, and any fixed-rate expiry dates. If a refinance is worth exploring, the pool of lenders offering SMSF residential products may be narrower going forward. While the ability to refinance existing grandfathered loans is still allowed, there is some uncertainty as to how many lenders and loan products will remain in the space once the changes are in place. Factor that into your timing.
2. Get your compliance records in order. Grandfathering does not create a lower compliance standard. Your fund still needs to meet the sole purpose test, keep annual financial accounts, and have assets independently valued. Speak with an SMSF specialist accountant to make sure your reporting is up to date.
3. Discuss forward strategy with a licensed adviser. If you were planning to use a new residential LRBA and that window has closed, there are other structures and asset classes worth understanding. Book a call with the EWC team at elitewealthcreators.com/booking/ to talk through what a residential or commercial SMSF property strategy looks like under the current rules, or explore the full range of what we coordinate at /services.

General information only, not personal financial advice. Speak with a licensed adviser before acting.