On 10 August 2026, the rules on what a self-managed super fund (SMSF) can borrow to buy changed. This article sets out what changed, what did not, and what to check if you have a fund with property plans in the works.
WHAT CHANGED
Until 9 August 2026, a fund could use a limited recourse borrowing arrangement (LRBA) to buy residential or commercial real property.
From 10 August 2026, a new LRBA can only be used to buy business real property. Residential property, new or established, is now off the table for new fund borrowing.
WHAT DID NOT CHANGE
- How an LRBA works is untouched.
- The new restriction does not apply to assets that are not real property, such as eligible shares or units.
- The rule applies the same way regardless of who the lender is.
Importantly, a fund can still buy residential property outright, or through a non-geared unit trust, it just can no longer borrow to fund the purchase.
THE BUSINESS REAL PROPERTY TEST
There are four elements to the business real property test, including the main requirement that the property be used wholly and exclusively in a business. “Wholly and exclusively” creates no room for exceptions or partial compliance. Further, the business doesn’t have to belong to the fund member; any tenant’s business qualifies, though vacant land always fails, regardless of zoning.
Common examples of business real property include commercial offices, retail premises, industrial property, rural or farming land, medical and professional consulting rooms, and residential-style premises used in a business.
WHAT IS NOT AFFECTED
The changes do not apply in two circumstances:
First, where an SMSF has exchanged a contract to acquire real property before 10 August 2026, even if settlement or entry into the LRBA is after that date.
Second, where an SMSF had already entered into an LRBA to finance a real property acquisition before 10 August 2026 and simply maintains or refinances that arrangement afterwards. In that case, the property does not need to be business real property because it stays protected as it is.
For anything financed on or after 10 August, the property must be business real property both at the time the LRBA is entered into and for its entire life.
If you have an SMSF property purchase in progress, or an existing LRBA you’re planning to refinance, check exactly where the arrangement stood on 10 August.
If you’re not sure, get in touch for tailored assistance.
NEGATIVE GEARING AND CGT: A SEPARATE CHANGE
From 1 July 2027, losses on established residential property purchased after Budget night (12 May 2026) will be quarantined and can generally only be deducted against residential property income, including relevant residential capital gains, with any excess carried forward. Eligible new builds keep the full negative gearing, and existing properties are grandfathered to the current owner.
Where the loss lands is worked out in a set order. It is first netted against income or losses from your other quarantined residential properties, then against income from your other residential properties. It is then netted against residential capital gains, taking deferred residential gains before other residential gains. Anything that is left over carries forward to future years.
Additionally, individuals will lose the 50% CGT discount from 1 July 2027. It is replaced by cost base indexation and a minimum 30% tax on real capital gains. Super funds are excluded from these changes and keep the existing treatment. For assets held for more than 12 months, two thirds of the gain is taxable, which at the fund’s 15% tax rate, is an effective 10% rate (or nil in pension phase).
Need help checking where a purchase or existing LRBA stands? Contact Ron Cohen, Principal, at Tisher Liner FC Law.
Disclaimer
The above does not constitute legal advice but is information which may be of general interest. Tisher Liner FC Law will not be held liable or responsible for any claim, which is made as a result of any person relying upon the information contained in this publication.
