Buying Property Through SMSF – Can I Borrow?
Purchasing property inside a Self-Managed Super Fund (SMSF) has been a popular wealth-building strategy for property-loving Australian investors. However, following recent legislation under the Treasury Laws Amendment (Tax Reform No. 1) Act 2026, the landscape for superannuation borrowing has changed significantly.
If you were considering using a loan inside your SMSF to purchase a residential investment property, below is high-level overview of what has changed, what remains, and what you need to consider before making your next move.
The Big Change: A Ban on New Residential LRBAs
Effective 10 August 2026, Self-Managed Super Funds are prohibited from entering into new Limited Recourse Borrowing Arrangements (LRBAs) to purchase residential real estate.
LRBAs allowed an SMSF trustee to take out a mortgage to acquire a single property, securing the loan against that property alone (protecting the fund’s other assets in the event of default). Under the new law, using debt in super to acquire residential property is no longer allowed. This change was negotiated by the Australian Greens to secure passage of the broader tax reform package.
Key Takeaways: If you do not exchange or sign a residential property contract prior to 10 August 2026, you will no longer be able to use a loan inside super to buy residential real estate. However, existing residential LRBAs can be refinanced after 10 August 2026 without breaching the rules, provided the new borrowing strictly refinances the pre-existing borrowing over the same asset without increasing the debt principal.
What Remains Permitted?
Whilst the door has nearly closed on leveraged residential property, it is important to understand what hasn't changed:
Existing Loans Are Grandfathered: If your SMSF already holds residential property under an existing LRBA, or if you signed a binding contract of sale before 10 August 2026, your LRBA remains in place and is not in breach of the rules. You will not be forced to sell or unwind the structure.
Buying Residential Property Outright: The ban applies to borrowing only, it does not apply to residential property itself. If your SMSF holds sufficient unborrowed cash, your fund can still buy residential property outright.
Commercial Property Is Unaffected: The ban applies strictly to residential real estate. SMSFs can still use LRBAs to borrow funds for "business real property" (such as commercial offices, warehouses, industrial units, retail premises or primary production land used in a business).
3 Critical Factors to Consider Before Buying Property in an SMSF
Whether you are looking at cash-funded residential property or leveraging into commercial premises, property inside super comes with strict compliance hurdles that require careful planning.
1. The Sole Purpose & In-House Rules
The Australian Taxation Office (ATO) strictly enforces that SMSF investments must serve the sole purpose of providing retirement benefits for members. For residential property, this means zero personal use. You, your family, or any related parties cannot live in the home, rent the property, or use it as a holiday house—even for a single weekend. All transactions must be strictly at arm's length. (Note that Business Real Property can be leased to a member's business at arm's length market rates without triggering the 5% in-house asset threshold)
2. Fund Liquidity and Cash Flow
Property is an illiquid asset—you cannot sell off a single room if your fund needs cash. Your SMSF must maintain enough liquidity to cover ongoing costs such as council rates, insurance, land tax, annual audit fees and pension payments to members without forcing an urgent sale.
3. Setup and Administration Overhead
Holding real estate in an SMSF involves additional legal structures (such as bare trusts for leveraged commercial property or corporate trustees), more complex financial reporting and extra audit compliance requirements.
Where to Go From Here?
While new leveraged residential property inside SMSFs is ending, commercial property and cash-funded acquisitions remain.
Before entering into any contract or altering your superannuation structure, getting tailored advice is essential to ensure your strategy is fully compliant with current ATO laws.
Need to review your SMSF strategy or explore your compliance options?
Contact Mint CA today to discuss how we can help you navigate superannuation compliance.
Further ATO guidance can be found here:
