SMSF Property Borrowing Changes from 10 August 2026

Short summary

From 10 August 2026, a new self-managed super fund limited recourse borrowing arrangement for real property will generally need the asset to be business real property within the meaning of section 66 of the Superannuation Industry (Supervision) Act 1993.

The change restricts the borrowing exception used for new residential property arrangements. It does not say that an SMSF can never hold residential property, and it contains transition protection for specified existing and in-progress arrangements.

This is a legal and superannuation compliance issue. Do not enter, refinance or change an arrangement based only on a general article. Ask a licensed SMSF professional to review the documents and dates.

What changed in the law

Treasury Laws Amendment (Tax Reform No. 1) Act 2026 received Royal Assent on 26 June 2026.

Schedule 5 adds a condition to the limited recourse borrowing exception in section 67A. Where the acquired asset is real property, it must be business real property within the meaning of section 66.

Schedule 5 commences on the 45th day after Royal Assent, which is 10 August 2026.

The practical distinction is between:

• ordinary residential property used as a home or residential rental; and
• real property that satisfies the statutory business real property test.

A sales listing or lender label does not decide that test.

Existing and in-progress arrangements

The transition wording is important. The Act says the amendment does not apply to the extent that a new arrangement maintains or refinances borrowing under another arrangement entered into before commencement. It also protects an acquisition that happens under an arrangement entered into before commencement, even where settlement occurs later.

This table is a general reading aid, not an eligibility or compliance decision.

What business real property means

The ATO says business real property generally means land and buildings used wholly and exclusively in a business.

SMSFR 2009/1 explains that this is a demanding, fact-specific test. It looks at the use of the real property and can involve questions about mixed use, leases, related parties and whether activities amount to a business.

Do not assume that every property marketed as commercial qualifies. Do not assume that an ordinary residential rental becomes business real property because rent is received. The ATO ruling says it would be rare for an SMSF's property investment activity itself to amount to a property investment business.

What the change does not mean

The change should not be shortened to "SMSFs cannot own residential property". Schedule 5 amends the limited recourse borrowing exception for real property. It does not create a blanket prohibition on every unleveraged residential property acquisition by an SMSF.

Other SMSF rules still apply, including the sole-purpose test, investment strategy, arm's-length dealing, related-party restrictions and acquisition rules. The fund's governing documents and liquidity also matter.

What this changes on RealEstateCalc

RealEstateCalc calculators do not test SMSF legal compliance, business real property status or the transition rules.

The Investment Property Yield Calculator can model a general property cash-flow scenario. The Capital Gains Tax Calculator is not an SMSF tax-return calculator. Neither result establishes that a fund can enter a borrowing arrangement.

Earlier site commentary that treated SMSF borrowing rules as unchanged has been withdrawn. Read the property tax changes checklist as a list of questions for a registered adviser, not a recommendation of an ownership structure.

Before relying on a transition rule

1. Record when the acquisition and borrowing arrangements were entered.
2. Keep the executed contract, loan, bare-trust and refinancing documents.
3. Identify every later variation and whether it may form a new arrangement.
4. Obtain written advice on business real property status where relevant.
5. Ask the fund's auditor and licensed advisers what evidence they require.

The commencement date is not a reason to rush a transaction. A property or loan that does not fit the fund's strategy, cash flow and legal requirements does not become suitable because of a transition deadline.

Sources

• Treasury Laws Amendment (Tax Reform No. 1) Act 2026, Schedule 5 and commencement table, registered 26 June 2026 and checked 14 July 2026.
• Treasurer: Government another step closer to delivering tax reforms, published 23 June 2026 and checked 14 July 2026.
• ATO: SMSF investment restrictions and business real property, checked 14 July 2026.
• ATO SMSFR 2009/1: business real property, checked 14 July 2026.

General information disclaimer

This article provides general information only. It is not superannuation, tax, legal, financial, credit or investment advice. It does not determine whether an asset is business real property or whether an arrangement is protected by the transition rules. Obtain arrangement-specific advice from appropriately licensed professionals before acting.