Recent changes as part of the Federal Budget mean that Self Managed Super Funds (SMSFs) can no longer borrow money to buy residential property. Here’s what investors and property buyers need to know.
For years, Australians could use a Self Managed Super Fund (SMSF) to borrow money and buy a residential investment property. However, recent legislative changes as part of the 2026 Federal Budget mean that from around 10 August 2026, SMSFs can no longer take out new loans to purchase residential property.
If you were planning to use your super to borrow and invest in a residential property, it is important to understand what has changed and how these changes may affect your options.
How SMSF property borrowing worked previously
SMSFs are prohibited from borrowing money, according to section 67 of the Superannuation Industry (Supervision) Act 1993 (Cth) (SIS Act). However, an exception introduced through sections 67A and 67B of the SIS Act allowed trustees to borrow under a ‘Limited Recourse Borrowing Arrangement’ (LRBA) loan structure.
What is an LRBA?
An LRBA loan enables SMSFs to borrow funds to acquire a single asset, such as an investment property, and then acquire legal ownership of the property once the loan is repaid. Importantly, a key feature of LRBA loans is that if the SMSF cannot repay the loan, the lender can generally only claim the property that was purchased with the borrowed money. The lender cannot access the SMSF’s other assets, such as cash, shares or other investments held by the fund, to cover the full amount of the loan. The lender’s rights are limited to the property itself and any income it generates, such as rent.
As a result, residential property has become a popular investment strategy for some SMSF trustees seeking long-term capital growth and rental income within their retirement portfolio.
What has changed and what is still allowed?
In June 2026, the Federal Government announced significant reform to SMSF borrowing rules as part of the broader suite of tax changes negotiated through Parliament. The new laws prevent SMSFs from entering into new LRBAs to acquire residential property. This change will come into effect from around 10 August 2026. Existing arrangements are generally grandfathered, meaning they can continue under the previous rules.
Importantly, the reform does not ban SMSFs from owning residential property altogether.
Instead, it removes the ability for SMSFs to borrow money to purchase residential property. An SMSF may still be able to purchase residential property using its existing funds, provided all other superannuation rules are satisfied.
What is still allowed?
SMSFs can still buy residential property, so long as a loan is not required (for example, if the SMSF used its cash reserves to buy the property).
An SMSF can otherwise still use an LRBA to buy other assets, such as commercial property, for example.
Why were the rules changed?
A key reason for the reforms is said to be to support housing affordability. The Government has stated that preventing SMSFs from borrowing to purchase residential property will help reduce investor demand in the housing market, making it easier for first home buyers and owner-occupiers to compete for homes. The changes also reinforce a view taken by policymakers that superannuation should be used primarily to build retirement savings rather than to support highly leveraged property investments.
What does this mean for investors?
If you were planning to establish or use an SMSF and borrow money to buy a residential investment property, that strategy is no longer available under the new rules.
Prospective investors may instead need to consider:
- Purchasing property outside superannuation using traditional lending arrangements (subject to other tax changes, including to negative gearing and capital gains tax concessions);
- Acquiring residential property through an SMSF using existing fund assets without borrowing;
- Exploring other investment options consistent with their retirement or wealth goals; and
- Considering commercial property opportunities.
Before entering into any property transaction, you should carefully assess financing structures, compliance obligations, and long-term goals, and obtain professional legal and financial advice.
Key Takeaways
- Self Managed Super Funds (SMSFs) are generally prohibited from borrowing money under Australian superannuation law, but for many years, Limited Recourse Borrowing Arrangements (LRBA) allowed SMSFs to borrow money to acquire residential property for investment purposes.
- Recent changes as part of the 2026 Federal Budget now prevent SMSFs from entering into new LRBAs to purchase residential investment property. These changes take effect from around 10 August 2026.
- Existing residential property borrowing arrangements entered into before 10 August 2026 are generally protected under grandfathering provisions.
- SMSFs may still acquire residential property without a loan, subject to compliance with superannuation laws.
- Borrowing opportunities for the purchase of commercial and business real property may still be available to SMSFs.
- Property purchases involving SMSFs require careful legal consideration due to the complex regulatory framework governing superannuation and property ownership.
The property and business law team at Joseph Grassi + Associates regularly assists clients with property transactions, business structures and legal issues affecting property ownership and investment. If you are considering purchasing property, reviewing an SMSF-related transaction, or need guidance on the legal implications of the recent borrowing changes, our experienced team is here to help.
Contact the team by phone on (02) 4702 5905 or by email to info@grassiassociates.com.au. For more information about the team, visit www.grassiassociates.com.au.
