New SMSF Borrowing Rules: What Trustees Need to Know Before Buying PropertyNew SMSF Borrowing Rules: What Trustees Need to Know Before Buying Property
The rules around borrowing through a self managed super fund (SMSF) have changed, with new restrictions affecting the types of property that can be purchased using borrowed funds.
The changes were introduced as part of negotiations to secure passage of the negative gearing and CGT discount measures announced in the May 2026 Federal Budget.
For SMSF trustees considering a property purchase through a limited recourse borrowing arrangement (LRBA), understanding the new requirements and the transitional rules is now particularly important.
What Has Changed?
SMSFs can only borrow in limited circumstances. One of the main exceptions allows an SMSF to use an LRBA to acquire a single acquirable asset.
Until now, there hasn’t been a specific legislative restriction on the type of asset an SMSF could acquire under these arrangements. In practice, LRBAs are commonly used to purchase property, including both residential and commercial real estate.
Under the new rules, where an SMSF borrows to purchase property, that property must meet the definition of business real property (BRP).
Importantly, whether a property qualifies as BRP depends on how it is used rather than simply its zoning or the purpose for which it was originally built.
Transitional Rules May Help Existing Transactions
The changes became law on 26 June 2026, but a 45-day transitional period applies until 10 August 2026.
This may provide relief for SMSF trustees who were already in the process of acquiring a property that doesn’t meet the BRP definition.
An arrangement involving a non-BRP asset may still be able to proceed under the previous rules even where settlement occurs after 10 August 2026, provided the arrangement to purchase the property was entered into on or before that date.
Given the significance of the timing and documentation requirements, SMSF trustees currently implementing an LRBA involving a non-BRP asset should consider obtaining specialist SMSF legal advice to confirm whether their arrangement satisfies the transitional rules.
It’s Not Simply a Ban on Residential Property
The changes have sometimes been described as a ban on SMSFs borrowing to buy residential property, but the use of the BRP definition means the position is more nuanced.
Because the definition focuses on how a property is used, a property that looks residential may still potentially qualify.
For example, a residentially designed terrace house that is used wholly and exclusively as a medical practice may be capable of meeting the BRP definition.
The reverse can also be true. A property that appears commercial may not necessarily qualify if it isn’t used wholly and exclusively for business purposes. A mixed-use property containing both residential and retail premises on a single title, for example, may fall outside the BRP definition.
This makes it important to look beyond the property’s appearance or zoning when determining whether an LRBA can be used.
What Should SMSF Trustees Do?
If you’re considering using an SMSF to borrow for a property purchase, confirming whether the property satisfies the new requirements should be an early part of the process.
The BRP definition can be complex and the consequences of getting an SMSF borrowing arrangement wrong can be significant. Trustees entering into new LRBAs should seek advice from specialist legal and financial advisers before committing to a transaction.
What About Existing LRBAs?
Existing LRBAs involving non-BRP assets are able to continue under the updated rules.
The rules also allow these existing arrangements to be refinanced, although this will remain subject to lender availability and approval.
For trustees with an existing LRBA, or those who entered into a property transaction around the transitional period, it’s worth reviewing the arrangement to understand exactly how the new rules apply.