You signed the contract, settled the property, and have been making principal and interest repayments ever since. Now the legislation has changed. The question most SMSF trustees with an existing residential loan are quietly asking is: does any of this touch me?
The short answer is no, not directly. But the detail matters.
What the New Law Actually Does
On 26 June 2026, the Treasury Laws Amendment (Tax Reform No. 1) Bill 2026 received Royal Assent. The changes to the LRBA laws were scheduled to come into effect 45 days after receiving Royal Assent, which was granted on 26 June 2026, meaning the changes became law from 10 August 2026.
The amendment prohibits SMSFs from entering into a new limited recourse borrowing arrangement (LRBA) to acquire residential property. Real property that constitutes business real property will still be able to be acquired using an LRBA.
The restriction applies prospectively rather than retrospectively, meaning existing residential borrowing arrangements entered into before commencement are intended to continue under the grandfathering provisions. The change only prevents new LRBAs. It does not unwind existing ones.
What Grandfathering Means in Practice
If your fund holds a residential LRBA that was in place before 10 August 2026, the practical effect is straightforward.
There is no forced sell-down, no LVR reset, no value trigger that unwinds the loan. Standard SMSF compliance continues (sole purpose test, related-party rules, in-house asset limits). Your existing structure runs to natural completion.
Refinancing is a common follow-up question. The legislation is unambiguous: the amendment does not apply to "maintaining (or refinancing) a borrowing of money under another arrangement entered into before that commencement." You can move your existing LRBA to a different lender for a better rate without losing grandfathered status. That said, switching lenders or materially changing loan terms could be interpreted as entering a new arrangement. Get specific advice from an SMSF specialist accountant or solicitor before acting on any refinance.
One housekeeping point: advisers are recommending trustees add a specific minute or addendum that acknowledges the legislative change, confirms the grandfathering status of any existing residential LRBA, and states that residential borrowing is no longer a permitted tactic. The ATO expects investment strategies to be updated after material legislative changes. This is a conversation for your SMSF administrator.
The Tax Position Stays the Same
Grandfathering preserves the loan structure. It does not change the fund's tax treatment, which was always determined by whether the fund is in accumulation or pension phase.
During accumulation phase, the fund's net income, which includes rental income, is generally taxed at a flat 15% rate. Net capital gains on assets held longer than 12 months are effectively taxed at 10% after the one-third discount.
In pension phase, income and capital gains from pension assets are generally tax exempt. That exemption applies up to the Transfer Balance Cap. It applies only to the portion of the fund supporting the pension, and only up to the Transfer Balance Cap, which is $2 million for 2025-26 and set to rise to $2.1 million from 1 July 2026. Anything above that cap remains in accumulation and is taxed at 15%.
For a fund holding a single property that has appreciated significantly, the timing of when members transition to pension phase carries real tax consequences. That planning belongs with a licensed financial adviser and your SMSF specialist accountant.
What If You Want to Add More Property?
This is where the landscape has genuinely shifted. Residential property can still be purchased using cash reserves of the SMSF only, so for clients with enough cash to buy without borrowings, the change in laws will have no real effect.
For trustees who want to hold residential property but cannot fund a full cash purchase, a structure using a unit trust (where the property is held in a trust the fund invests in and the borrowing sits in the trust rather than the fund) is one option that some advisers are now discussing more actively. This is a complex area with its own compliance requirements, and it is a conversation for an SMSF specialist, not a starting assumption.
Commercial property and unit parcels will still be able to 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.
An Illustrative Scenario
Consider a fund in accumulation phase holding a residential property purchased in 2021 under an LRBA. The property was purchased for $650,000 and is now independently appraised at $820,000. The loan has nine years remaining.
Under grandfathering, the loan continues unchanged. Rental income continues to be assessed at 15% inside the fund. If the property is eventually sold while the fund is still in accumulation phase, and has been held for more than 12 months, the effective CGT rate is approximately 10% (after the one-third discount on the 15% rate). If the member has transitioned to pension phase by then and the assets are within the Transfer Balance Cap, CGT is nil. These are illustrative figures only, and the actual tax outcome depends on each fund's specific circumstances.
The fund cannot use the existing LRBA to acquire a second residential property. That loan is attached to the single asset it was set up to acquire.
Practical Next Steps
Review your investment strategy document. Your SMSF administrator can help you add a trustee minute that records the legislative change and confirms the fund's approach going forward. The ATO has indicated it expects strategies to be updated after material law changes.
Get clarity on refinancing before acting. If your current LRBA rate is uncompetitive, speak with an SMSF-experienced broker and a solicitor before approaching lenders. The legislation permits refinancing of a grandfathered arrangement, but how individual lenders and the ATO treat specific changes to loan terms is still developing.
Model your pension phase transition. The tax difference between accumulation and pension phase on a property sale can be substantial. Discuss the timing with a licensed financial adviser and an SMSF specialist accountant, particularly in light of the Transfer Balance Cap and, for larger balances, the Division 296 tax that applies to total superannuation balances above $3 million from 1 July 2026.
If you are also thinking about where residential or commercial property fits into your broader strategy from here, our team at Elite Wealth Creators coordinates the property sourcing and finance referral side of that process. You can read more on the insights page or book a call to talk through your situation.
General information only, not personal financial advice. Speak with a licensed adviser before acting.