You have super sitting in an SMSF. You want to hold residential property inside it, and you want to use some form of borrowing to do it. The question people are now asking is: with the LRBA door closed for residential property, what comes next?
This post explains the mechanics of one pathway that remains available: the SMSF and unit trust structure. It is general information only. The rules here are technical and individual circumstances vary widely.
What Changed on 10 August 2026
Legislative changes to limited recourse borrowing arrangements (LRBAs) commenced on 10 August 2026. The SMSF LRBA ban on residential property took effect from that date, meaning SMSFs can no longer borrow to buy residential property via the LRBA structure.
The changes do not apply where an SMSF entered into a binding contract to acquire real property before 10 August 2026, even if settlement occurs or the LRBA is entered into on or after that date. The SMSF may continue to maintain or refinance an existing LRBA after 10 August 2026. So if your fund already has a residential LRBA in place, it continues on its existing terms.
Commercial property and business real property 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.
Residential property can still be purchased using cash reserves of the SMSF only, so for trustees who are able to buy without borrowings the change has no real effect.
The Unit Trust Pathway: How It Works
For trustees who want residential property and some form of borrowing, a separate unit trust structure is the principal remaining option. The core idea is that the borrowing does not sit inside the SMSF itself. Instead, the property is held in a unit trust, and the SMSF invests into that trust by acquiring units.
Under Regulation 13.22C of the SIS Regulations 1994, an exception from the in-house asset rules (section 71 of the SIS Act 1993) applies for investments in a related unit trust. This is what allows the structure to remain compliant, provided it is set up correctly from the outset and certain conditions are met.
The unit trust itself can borrow to fund the property acquisition. That borrowing is the unit trust's liability, not the SMSF's. The SMSF contributes a deposit by purchasing units in the trust, typically somewhere in the range of 20 to 30% of the property value, though the exact amount depends on the lender and the specific deal. Repayments are structured as principal and interest.
A meaningful difference from a traditional LRBA is that this structure can accommodate construction. A standard LRBA required the property to be a completed asset under a single contract. The unit trust is not bound by that same constraint, which means trustees looking at a new build have more flexibility here.
The same core compliance obligations that apply to any SMSF residential property still apply here:
- The property must not be acquired from a related party of a member, and it cannot be lived in or rented by a fund member or a related party of a member.
- The investment must pass the sole purpose test under section 62 of the SIS Act: the fund's investments must exist to provide retirement benefits to members.
- The trust structure must remain non-geared at the time the units are acquired, and must continue to satisfy the conditions in Regulation 13.22C to preserve the in-house asset exemption.
The Trade-Offs Worth Thinking Through
This structure has genuine advantages over what was available before. Unlike an LRBA, it can support construction, making it compatible with new house-and-land packages and off-the-plan townhouses. For trustees who want a new build rather than an established property, that is a meaningful distinction.
That said, the structure carries its own costs and complexity. There are two legal entities to establish and maintain: the SMSF and the unit trust. Both need their own trust deeds, their own accounting, and their own annual compliance work. Set-up costs are real and ongoing costs are higher than a straightforward cash purchase.
The fund also needs to hold enough liquidity outside the unit trust investment to meet its other obligations, including member benefit payments, insurance premiums, and the fund's running costs. A trustee who tips most of the fund's assets into unit trust units may find the fund is illiquid at a point when it needs cash.
Tax rates inside super are worth understanding. Concessional contributions are generally taxed at 15% inside the fund. Rental income and investment returns are also taxed at 15% in accumulation phase. When a member moves into pension phase, income and capital gains on assets supporting that pension can be 0%, subject to the transfer balance cap. The general transfer balance cap increased from $2,000,000 to $2,100,000 from 1 July 2026.
For capital gains specifically: assets held under 12 months are taxed at the full 15% rate in accumulation phase, and assets held over 12 months attract an effective 10% rate. In pension phase, both are 0% up to the transfer balance cap. These rates apply at the fund level, not the individual level.
A Worked Scenario
Consider a couple, both in their mid-40s and still in accumulation phase, with a combined SMSF balance of $600,000. Their SMSF specialist accountant confirms the fund has $180,000 available to commit as a deposit and unit purchase, leaving the remaining balance in cash and other assets for liquidity.
Their SMSF subscribes for units in a newly established unit trust at $180,000. The unit trust obtains financing for the remaining 70% to purchase a completed residential investment property. The trust holds legal title; the SMSF holds the beneficial interest via its units.
Rental income flows into the unit trust, services the loan, and any surplus distributes to the SMSF. Inside the fund, that rental income is taxed at 15%. The property is leased to arm's-length tenants at market rent. An independent rental appraisal is obtained before setting the lease terms. Vacancy periods, property management fees, and the unit trust's loan repayments all affect what actually reaches the fund.
If the property is sold after the couple have retired and converted to pension phase, and if the asset is supporting a pension balance within the transfer balance cap, the capital gain may attract 0% tax. None of that is certain, and this scenario is illustrative only. Actual outcomes depend on individual fund circumstances, tax position, and how the rules stand at the time.
Key point: the unit trust pathway works differently depending on whether the fund is in accumulation or pension phase. Tax treatment, contribution capacity, and liquidity needs all shift as members approach and enter retirement. These are things to map out with an SMSF specialist accountant well before committing.
Three Concrete Next Steps
If this structure is something you are considering, here is where to start:
- Talk to an SMSF specialist accountant. The unit trust structure has specific conditions under the SIS Regulations. An accountant who works regularly with SMSFs can assess whether your fund's current balance, liquidity, and investment strategy are compatible with this approach. According to the ATO, there were over 653,000 SMSFs as at 31 December 2025, with more than $1 trillion in assets, and not all of them are structured to support this kind of property investment. Yours may or may not be.
- Speak with a licensed broker who has SMSF lending experience. The lending market for unit trust structures is smaller than for standard residential mortgages. Deposit requirements, loan terms, and lender appetite vary. A broker familiar with this space can tell you what is actually available at the time you are looking.
- Get an independent rental appraisal before any property is selected. Rental income projections matter for the fund's cash flow and compliance. An independent appraisal from a local property manager, not from the selling agent, gives you a realistic picture of likely income and vacancy.
If you want to understand how EWC coordinates property sourcing and finance referrals for SMSF structures, you can read more at /services or book a call at https://elitewealthcreators.com/booking/.
General information only, not personal financial advice. Speak with a licensed adviser before acting.