Super Funds – Changes to Limited Recourse Borrowing Arrangement (LRBAs) rules for SMSF

Marco Saccotelli

Special CounselAitken PartnersView Profile

In June 2026, the government announced a major change to the SMSF LRBA rules. The change was the result of negotiations to secure support for the Government’s wider tax reform package, including changes to the capital gains tax rules and the removal of negative gearing.

In June 2026, the government announced a major change to the SMSF LRBA rules. The change was the result of negotiations to secure support for the Government’s wider tax reform package, including changes to the capital gains tax rules and the removal of negative gearing. This was despite the evidence showing that SMSFs were not heavily involved in gearing up to acquire existing residential premises.

The key change is that the government has agreed to ban new LRBAs in relation to the acquisition of residential property from 10 August 2026. Existing purchases using debt entered into prior to 10 August 2026 are not affected by the change, and LRBAs are still allowed to be used where the real property acquired is business real property. Existing or new residential premises however can no longer be acquired using an LRBA.

For a property to satisfy the requirement to be business real property, it must be a freehold or leasehold interest in land which is used ‘wholly and exclusively’ in one or more businesses. That business does not need to be a business run by the SMSF or its members or Part 8 Associates (although commonly it is): it can be anyone’s business. SMSF Ruling 2009/1 analyses the meaning of ‘business real property’ in the context of the exception to the prohibition on a complying fund intentionally acquiring assets from a member or a Part 8 Associate of the fund under s.66(5) of the Superannuation Industry (Supervision) Act 1993 (Cth).

The most common types of business real property are:

• Commercial office premises: an office suite used by an accountant, solicitor, consultant, medical practitioner or other professional business.
• Retail premises: a shop, showroom, café premises, restaurant premises or other customer-facing business site.
• Industrial property: warehouses, factories, workshops, depots, storage facilities and manufacturing premises.
• Rural or farming property: land used in a primary production business, such as farming, grazing, horticulture etc.
• Medical or professional consulting rooms (even where a residential style house is used): surgeries, clinics, dental rooms, veterinary premises or allied health consulting rooms.

Care needs to be taken with the acquisition of real property under a custodian/bare trust to ensure that all available duty exemptions under the Duties Act 2000 (Vic) are utilised and all documents confirm that the SMSF is the actual purchaser and funder of all acquisition and holding costs of the property.

If you need any advice surrounding the LRBA rules and any duty or taxation implications please contact Marco Saccotelli.