SMSF Borrowing Rules Have Changed

What SMSF Property Investors Need to Know in 2026

For many Australians, using a Self-Managed Super Fund (SMSF) to invest in property has been an attractive long-term wealth creation strategy. However, significant legislative changes announced in June 2026 have fundamentally changed the landscape for SMSF residential property investors.

What Has Changed?

From 23 June 2026, SMSFs can no longer establish new Limited Recourse Borrowing Arrangements (LRBAs) to purchase residential investment property.

An LRBA is the structure that allowed an SMSF to borrow money while limiting the lender's claim to the specific asset being purchased. Since their introduction in 2007, LRBAs have been widely used by investors wanting to combine the tax advantages of superannuation with direct property ownership.

The new legislation abolishes this borrowing option for new residential property purchases.

Existing SMSF Property Loans Are Protected

If your SMSF already owns a residential investment property under an existing LRBA, your arrangement has been grandfathered.

This means:

• Your current loan can continue until it is fully repaid.
• There is no requirement to sell the property.
• Rental income continues to receive the concessional SMSF tax treatment.
• Capital gains tax concessions remain available under the existing superannuation rules.

In other words, existing borrowers can continue with their current strategy.

Be Careful If You're Thinking About Refinancing

While existing LRBAs have been protected, refinancing may not be as straightforward as many investors assume.

There is currently uncertainty around whether refinancing an existing SMSF loan with another lender could potentially be treated as establishing a new borrowing arrangement.

Until further guidance is available, SMSF trustees should obtain specialist accounting and legal advice before making any refinancing decisions.

Protecting your grandfathered status could save significant tax and compliance issues in the future.

Commercial Property Borrowing Remains Unchanged

SMSFs can still borrow to purchase eligible commercial property, including:

• Offices
• Warehouses
• Factories
• Retail shops
• Business premises

For many business owners, purchasing their own business premises through an SMSF remains one of the most effective long-term wealth creation strategies available.

What If You Planned to Buy Residential Property Through Your SMSF?

Unfortunately, that strategy is no longer available.

If you were intending to use borrowed funds inside your SMSF to purchase residential property, you'll now need to explore alternative investment strategies.

Depending on your circumstances, these may include:

• Purchasing residential property outside your superannuation fund
• Investing in commercial property through your SMSF
• Diversifying into listed property investments or other asset classes
• Reviewing your overall retirement strategy

Every investor's situation is different, making professional advice more important than ever.

Why Good Record Keeping Has Never Been More Important

These changes also highlight the importance of maintaining accurate property records.

Whether your property is held inside or outside your SMSF, you should retain documentation including:

• Purchase contracts
• Settlement statements
• Loan documents
• Capital improvement invoices
• Rental income records
• Depreciation schedules
• Cost base information

Strong record keeping helps ensure you maximise legitimate tax deductions and accurately calculate capital gains tax when the property is eventually sold.

The Bottom Line

The abolition of new residential SMSF borrowing arrangements is a significant change for property investors, but it doesn't spell the end of SMSF property investing.

Existing residential LRBAs remain protected, while commercial property borrowing continues unchanged.

For investors considering their next move, now is an ideal time to review your SMSF strategy, assess your investment options and ensure your structure remains aligned with your long-term financial goals. The right advice today can help you avoid costly mistakes tomorrow.

Frequently Asked Questions about SMSF Property Investing Borrowing Rule Changes

1. Can an SMSF still borrow to buy residential property in 2026?

No. From 23 June 2026, Self-Managed Super Funds (SMSFs) can no longer establish new Limited Recourse Borrowing Arrangements (LRBAs) to purchase residential investment property.

2. What happens if my SMSF already owns a residential investment property with a LRBA loan?

If your SMSF held a residential property under an existing LRBA before 23 June 2026, your arrangement is protected. You can continue making loan repayments as normal, retain the property's concessional tax treatment within your SMSF, and there is no requirement to sell the property simply because the rules have changed. Before making any changes, particularly refinancing, seek professional advice.

3. Can my SMSF still borrow to purchase commercial property?

Yes. The 2026 changes only affect new residential property borrowing. SMSFs can still use an LRBA to purchase eligible commercial property, including offices, warehouses, factories and business premises. For many business owners, purchasing their own commercial premises through an SMSF remains a highly tax-effective long-term strategy.

4. Should I refinance my existing SMSF property loan?

Proceed with caution. While existing residential LRBAs are grandfathered, there is currently uncertainty about whether refinancing with another lender could be treated as establishing a new borrowing arrangement. Until further guidance is available, SMSF trustees should obtain specialist accounting and legal advice before refinancing to avoid unintentionally affecting their grandfathered status.

Need Advice About Your SMSF?

If you want to understand your options under the new rules, the team at Cashflow Financial can help. We have offices in Sutherland and the Wollongong suburb of Fairy Meadow.

Our experienced accountants and SMSF specialists provide tailored advice to help you structure your investments tax-effectively while remaining compliant with the latest legislation. Contact Cashflow Financial today to arrange a personalised consultation and receive advice tailored to your financial goals and investment strategy.