The snapshot version

The rules on borrowing inside a self-managed super fund have changed — and this time it’s actually law, not a Budget thought bubble.

As part of the deal that got the Government’s capital gains tax and negative gearing package through the Senate, the Greens secured an amendment that stops SMSFs from using a Limited Recourse Borrowing Arrangement (LRBA) to buy residential property. The bill passed both houses of Parliament on 25 June 2026.

Here’s the bit the headlines mostly got wrong: this is not a blanket ban on SMSF property borrowing. Commercial property borrowing is untouched. And borrowing to buy shares or units inside an SMSF isn’t affected at all.

If you’ve got an existing loan, you can stop reading and relax — you’re grandfathered. If you were planning a residential purchase inside super using borrowed money, there’s a closing window and you need to understand the deadline.

Let me walk you through what actually changed.

What the law actually does

The change is narrow and surgical. It adds a single condition to section 67A of the Superannuation Industry (Supervision) Act 1993 — the section that sets out what an SMSF is allowed to borrow to buy.

In plain English: if the asset being bought under an LRBA is real property, that property must now be Business Real Property (BRP) as defined in section 66 of the same Act.

That’s the whole mechanism. Two things flow from it that are easy to miss:

• It only bites on real property. LRBAs to buy other allowable assets — like shares in a company or units in a unit trust — aren’t affected by this change. The usual rules for those still apply.
• The line isn’t drawn at “residential vs commercial.” It’s drawn at “Business Real Property vs everything else.” Most commercial property is BRP, so most commercial deals are fine. But some property that feels commercial doesn’t make the cut — more on that below.

What is Business Real Property?

Business Real Property has a specific legal meaning. Broadly, it’s real property used wholly and exclusively in one or more businesses.

That “wholly and exclusively” test is doing a lot of work. It’s the difference between a property that qualifies and one that doesn’t.

On the strength of that test, an SMSF can generally still borrow to buy things like:

• offices
• warehouses
• factories and industrial premises
• medical and consulting suites
• retail premises
• business premises occupied by a related business

…provided the specific property genuinely meets the BRP definition. That last part matters. BRP is assessed property by property, on the facts.

The trap: not everything “commercial” is BRP

Here’s a point that’s easy to get wrong, and exactly the kind of thing worth checking before you sign anything.

A mixed-use property — say, a shop with a residential flat above it — generally isn’t Business Real Property, because it’s not used wholly and exclusively in the business. The residential component breaks the test.

So “it’s a commercial-looking building” is not the same as “it qualifies for an LRBA.” Get the BRP question answered before you commit.

What about residential property?

This is where the big change lands.

From commencement, an SMSF can’t enter a new LRBA to buy a residential investment property that’s there to be rented to residential tenants. That captures the obvious things:

• houses
• apartments
• townhouses and units
• holiday homes
• standard residential rentals

None of these are Business Real Property, so none of them can be acquired with a new LRBA once the ban starts.

The nuance most people are missing: it’s about use, not zoning

The test isn’t whether a property is “zoned residential.” It’s how the property is used.

So a property that is legally residential but is used wholly and exclusively in carrying on a business can still meet the Business Real Property definition.

Depending entirely on the facts and proper professional advice, that could include things like:

• a medical practice operating out of a converted residential house
• a professional office (say, a solicitor or accountant) run wholly from former residential premises
• a childcare business
• any property used entirely for business purposes

The key test is business use, not the colour of the zoning certificate. And because it turns on the facts, every one of these needs to be assessed individually — and signed off by the right adviser — before you proceed. Don’t assume.

One honest caveat for the planners and accountants reading this: BRP status isn’t always permanent. A property can be Business Real Property at one point and not at another as its use changes. It’s a live test, not a one-off tick.

The deadline: this is the part that matters if you’re mid-deal

The ban commences 45 days after the amending Act receives Royal Assent, and it operates prospectively — it only affects new arrangements from that date.

On timing: the bill passed Parliament on 25 June 2026. Reporting on the exact Royal Assent date varies slightly, and 45 days from assent lands the commencement in or around the second week of August 2026 (some commentators are pointing to around 10 August). Because the contract deadline is the single most important number here, confirm the exact commencement date against the registered Act on the Federal Register of Legislation before you rely on it. I’ll update this once it’s locked.

If you’re planning to buy a residential property in your SMSF with borrowed money, here’s what you need to know:

• It’s the contract date that counts, not settlement. The consensus reading among SMSF specialists is that exchanging contracts before commencement is what protects you. (Worth noting: there isn’t official guidance yet on precisely what counts as “entering the arrangement,” so don’t cut it fine — get advice on your specific timeline.)
• Settlement can happen after commencement. If you’ve exchanged before the cut-off, settling later is fine.
• Existing LRBAs are fully grandfathered. Nothing changes for loans already in place.
• Existing residential SMSF loans can continue — and can be refinanced. Refinancing of a pre-commencement borrowing is specifically carved out.

If you’ve already started the process of buying a residential property inside your SMSF using borrowings, the practical message is simple: don’t dawdle, and get your timeline mapped now.

So is SMSF property “over”? No.

The “SMSF property is dead” narrative is overblown.

What’s changed is one specific pathway: new borrowing for residential property. That’s it. SMSFs can still:

• borrow to buy Business Real Property (commercial premises, business real property used by a member’s business)
• buy residential property outright (no borrowings) if the fund has the cash
• hold every existing arrangement exactly as it stands

For business owners who use their fund to hold their own business premises, nothing changes. That strategy is intact.

What to do now

• You have an existing SMSF loan? Do nothing different. Confirm with your accountant that your arrangement is grandfathered, and move on.
• You were planning a residential SMSF purchase with borrowing? Talk to your broker and accountant this week and map whether you can exchange contracts before commencement.
• You’re weighing up a commercial / BRP purchase? The rules haven’t changed — but get the Business Real Property question confirmed on your specific property before you sign.
• You don’t have an SMSF yet but were considering one specifically to gear into residential property? That pathway is closing. The conversation shifts to commercial/BRP, an outright purchase, or property held outside super.

If you want a second set of eyes on a structure or a timeline, that’s exactly the kind of thing I help with.

 

Written by Charmain Hughes

 

Disclaimer

The information contained in this article is general information only and has been prepared without taking into account your personal objectives, financial situation or needs.

This article is intended for educational and informational purposes only and should not be relied upon as financial, tax, legal or investment advice.

Property ownership, taxation outcomes, negative gearing benefits, capital gains tax implications and investment strategies will vary depending on individual circumstances. Before making any financial or investment decision, you should seek independent advice from your accountant, financial planner and legal adviser.

Any references to proposed Government policy, legislation or taxation changes are based on information available at the time of publication and may be subject to amendment, delay or parliamentary approval.

Wish Loans Pty Ltd T/A LoanChat is a mortgage broker and credit representative. We do not provide financial planning, taxation or legal advice.