Be Informed Now & Beyond – Time To Get A Wiggle On…

As Brokers will know by now, SMSF’s will soon no longer be able to borrow to invest in residential property via Limited Recourse Borrowing Arrangements (LRBAs)  unless the borrowing is for a commercial purposes (i.e. SMSF lending for “business real property” – a term we will all come to know and love in the future).

The Governments announced LRBA changes have raised questions from all of us in the industry, scratching to understand the implications in the short term for matters on foot and into the future.

We are providing here information from multiple sources we believe adds some insight to clarify (and summarise) some of the considerations for future SMSF lending during the market transition (and to CYA).

Major clarification to absorb

– The legislation does not explicitly ban all residential property. 

– It instead restricts LRBAs to “business real property”.

What happens before 10th August 2026

– Residential LRBA allowed.

– Must exchange contract before 10 August 2026, which is the date the legislation comes into effect. This is 45 days after Royal Assent was granted by the Governor General on 26 June 2026.

What happens on and after 10 August 2026

– Only “business real property” allowed for funding of property purchasing within SMSF.

– Must be wholly and exclusively used in one or more businesses.

It appears some residential properties may be allowed, but only where it meets the “business real property” rule. That means it must be:

– 100% business use.

– No residential or private use component.

– Some commercial properties may not be allowed, for example mixed use cases.

Why?

The test is the use of the property, not asset type or zoning.Internal use

It kind of appears that Zoning is irrelevant post the 10th

– Being commercially zoned does not guarantee eligibility.

– Being residentially zoned does not automatically exclude it.

Actual use in a business is the TEST that matters

– A residential property used in a business may qualify as “business real property”.

– A commercial property not fully used for business may not qualify as “business real property”.

Your key takeaways

Eligibility for SMSF lending post-legislative change is subject to the asset meeting the definition of “business real property”, which requires the property to be wholly and exclusively used in one or more businesses. Heads ups, this assessment may require independent legal or SMSF advice.

Disclaimer & DYOR (Do Your Own Research)

This is general information only and does not constitute financial or legal advice. SMSF Trustees should obtain specific advice to ensure the property they are acquiring meets the definition of “business real property” and ensure that they obtain pre-approval from their lender before entering into any purchase contracts.

Ok, that’s enough for now. If you have any questions please contact us via [email protected] or call your BDM.

Cheers

Chris W