You have been watching this one come. The legislation passed, Royal Assent landed on 26 June 2026, and the 45-day clock ran out. If you are an SMSF trustee who was weighing up a residential investment property inside your fund using borrowed money, the option you were considering no longer exists for new arrangements.
This post explains what changed, what did not, and what the realistic alternatives look like. It is general information only, based on the rules as they currently stand.
What the law now says
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. The key change: SMSFs can no longer enter into new Limited Recourse Borrowing Arrangements (LRBAs) to purchase residential property.
Any LRBA entered into on or after 10 August 2026 to acquire real property can only be used to acquire business real property, broadly land and buildings used wholly and exclusively in one or more businesses.
The change is prospective, not retrospective. Existing SMSF borrowing arrangements are grandfathered and can continue under the existing rules, meaning SMSFs with an existing LRBA for residential property are not required to unwind the arrangement because of the new rules. The grandfathering provisions also protect existing LRBAs, including the ability to refinance to a different lender.
The changes relate specifically to borrowing arrangements and do not alter existing superannuation tax concessions. Income inside the fund is still taxed at 15% in accumulation phase. A SMSF in 100% pension phase does not pay tax on earnings. For capital gains, a property held more than 12 months in accumulation phase attracts an effective 10% rate; in full pension phase the rate is 0%, subject to the Transfer Balance Cap. The Transfer Balance Cap is $2.1 million as of 1 July 2026, which is the ceiling on what each member can transfer into pension phase.
What is still available inside an SMSF
Commercial property LRBAs are unaffected. 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. 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.
Cash purchase of residential property is still allowed. Residential property can still be purchased using cash reserves of the SMSF only, so for funds with enough capital to buy without borrowings, the change in laws will have no real effect.
Unit trust structures remain a path for some funds. Where a fund cannot or does not want to purchase outright, some SMSF specialist advisers use a unit trust structure in which the property is held inside a unit trust the fund invests in, and any borrowing sits at the trust level rather than the fund level. This is a materially different structure from an LRBA, with its own compliance requirements and costs. It is not a simple substitute, and it requires specific legal and accounting advice before any step is taken.
Buying outside the fund is a separate conversation entirely. Buying in your personal name or through a trust means you borrow personally, claim tax deductions on interest and expenses, and benefit from negative gearing. For new builds, full negative gearing continues to apply. Doing this through EWC's standard investment property service, rather than through your SMSF, is a distinct structure with different tax treatment. Neither path is right for everyone.
The trade-offs worth thinking through
For trustees who already hold a grandfathered residential LRBA, very little changes day to day. The fund continues servicing the loan under its existing terms, and any future refinance to another lender is permitted.
For trustees who were planning a new residential LRBA and did not exchange contracts before 10 August 2026, the borrowed-inside-the-fund path for residential property is closed. The alternatives each carry their own trade-offs:
- Cash purchase inside the fund ties up a large portion of the fund's liquidity in a single illiquid asset. Trustees need to weigh this against the sole purpose test, diversification obligations, and the fund's capacity to meet member pension payments and expenses without a forced sale.
- Commercial LRBA requires the property to meet the business real property definition. Mixed-use property, vacant land, or property with private or residential use may need careful review before an LRBA is entered into. Deposit requirements for commercial SMSF loans are typically higher than for standard residential loans.
- Unit trust structure adds legal complexity and ongoing compliance cost. It suits some fund situations and not others. An SMSF specialist accountant and solicitor need to be involved from the start.
- Personal investment property outside the fund puts the asset in your own name, where different CGT rules, negative gearing treatment, and borrowing terms apply.
A residential property in an SMSF is treated completely differently from one owned personally. Trustees cannot spend a weekend in it, cannot let an adult child rent it, and cannot buy a property they already own and shift it into the fund. These rules apply regardless of whether the fund borrowed or paid cash.
An illustrative scenario
Consider a fund in accumulation phase with two members, combined balance of $600,000, and a desire to hold a residential investment property worth $650,000. Under the old rules, a residential LRBA might have funded the gap. Under the rules now in force, that path is closed for a new purchase.
If the fund had $650,000 in cash, a direct purchase remains open. Rental income would be taxed at 15% per year. If the property were eventually sold after both members had moved to pension phase and within their Transfer Balance Cap, the capital gain could be taxed at 0%. That is an illustrative description of how the tax mechanic works, not a projection of what any specific property will earn or grow to. Actual rental yields vary by location, vacancy rates, and market conditions, and an independent rental appraisal is the right starting point for any income estimate.
For the same two members, a commercial LRBA, if they own business premises, remains a separate and still-available path. The structure, deposit size, and serviceability assessment differ substantially from a residential loan. An SMSF-specialist broker and accountant would need to map the numbers for their specific fund.
Practical next steps
If you hold an existing residential LRBA, confirm with your SMSF specialist accountant that your fund's investment strategy is updated to reflect the legislative change and document the grandfathered status of the arrangement. A trustee minute or addendum that acknowledges the legislative change and confirms the grandfathering status of any existing residential LRBA is good practice, and the ATO expects investment strategies to be updated after material legislative changes.
If you were planning a new residential purchase inside your SMSF, speak with an SMSF specialist accountant and a licensed financial adviser about which of the remaining paths, cash purchase, unit trust, commercial property, or personal investment, fits your fund's balance, liquidity, and member circumstances. These are separate professional engagements, not a single conversation.
If you are considering a residential investment property outside your SMSF, EWC sources investment-grade properties for individual investors and coordinates the finance referral to a licensed broker. To understand how that process works for your situation, book a free call or visit our services page.
For further reading on how SMSF property structures fit into a broader investment approach, see our insights blog.
General information only, not personal financial advice. Speak with a licensed adviser before acting.