SMSF Residential Borrowing Ban: What Still Qualifies After 10 August 2026

Key Takeaways

• From 10 August 2026, a new LRBA can only buy real property that qualifies as business real property. That closes new borrowing for residential investment, while cash purchases are unaffected.
• Loans entered into before 10 August continue under the old rules, as do refinances of those loans and binding contracts exchanged before that date.
• The property must meet the business real property test when the loan starts and for every year the loan runs.
• A shop with a flat upstairs, a property bought empty or short-stay accommodation can fail the test even when it looks commercial.

For many self-managed super fund (SMSF) trustees, the plan was already in motion. The fund had a pre-approval, the bare trust deed was drafted and a residential investment property was on the shortlist, but no contract was exchanged before 10 August 2026. The SMSF residential borrowing ban now sits between that fund and the purchase. The question has shifted from which property to buy to whether the fund can borrow at all.

It can, within narrower limits. An SMSF can still use a limited recourse borrowing arrangement (LRBA) to buy property used wholly and exclusively in a business, provided that use continues for as long as the loan runs. Loans and contracts in place before the cut-off continue under the old rules. For trustees now looking at commercial premises, an SMSF commercial loan broker can compare lender policy on a specific property, while the fund’s adviser confirms whether it meets the super rules.

What Changed for SMSF Borrowing On 10 August 2026

The SMSF borrowing ban that took effect on 10 August 2026 means a new LRBA can only buy real property that qualifies as business real property. The Australian Taxation Office (ATO) has stated that LRBAs themselves are not banned. The change has these parts:

New Borrowing Law

The Treasury Laws Amendment (Tax Reform No. 1) Act 2026 (No. 49 of 2026) received Royal Assent on 26 June 2026. The borrowing change commenced 45 days later, on 10 August. It amends the limited recourse borrowing provisions of the Superannuation Industry (Supervision) Act 1993 so that real property acquired under a new LRBA must be business real property as defined in section 66 of that Act.

Before the change, an LRBA could fund either a residential or a commercial purchase. The LRBA structure is otherwise unchanged. The property is still held in a bare trust, and the lender’s recourse is still limited to that asset.

Industry submissions to a Senate inquiry in July 2026 asked Parliament to soften parts of the restriction. In October 2026, the ATO also released draft updates to its business real property ruling (SMSFR 2009/1) and its limited recourse borrowing ruling (SMSFR 2012/1), open for comment until 27 November 2026. Trustees may want to check for any later changes before acting.

Upfront Business Use Test

A property must already be used wholly and exclusively in one or more businesses on the day the LRBA is entered into. The ATO’s LRBA guidance states that the property must be business real property at that point. A plan to convert a property to business use after settlement is unlikely to satisfy the requirement.

Ongoing Business Use Test

The property must keep qualifying until the loan is repaid. According to the ATO, a fund whose property stops being business real property at any point during the LRBA fails to maintain the arrangement according to the rules.

That obligation lasts the full loan term, and terms of up to 25 years are common for SMSF commercial loans, depending on the lender. A change of tenant could affect the fund’s position. So could a change in how the premises are used or a decision to let part of the building for another purpose. Trustees may want their SMSF adviser and auditor to review the property’s use each year.

How Grandfathering Works for SMSF Loans

The new rules apply only to arrangements entered into on or after 10 August 2026. Each situation falls on one side of that line:

Existing Loans

An LRBA entered into before 10 August 2026 is unaffected, whatever type of property it funded. A fund holding a residential investment under a pre-ban loan does not need to sell the property or unwind the arrangement. Nor does it need to show that the property meets the business real property test.

Refinanced Loans

Refinancing a grandfathered SMSF loan is generally permitted, because the ATO has confirmed that refinancing a pre-10 August LRBA is not caught by the new rules. A fund on a residential loan may therefore still move to a new lender without the property needing to qualify as business real property.

In practice, a refinance may depend on current lender policy, a fresh valuation and the fund’s liquidity. It may also depend on each lender’s appetite for residential SMSF lending, which may have narrowed since the ban began. A refinance generally replaces the existing debt dollar for dollar and is unlikely to release equity. SMSF refinance costs include a legal review of the existing structure, so the rate saving usually needs to be meaningful before a switch pays off.

Pre-Ban Contracts

A binding contract exchanged before 10 August 2026 is protected. The ATO has confirmed that this protection holds even where settlement, or the LRBA itself, happens later. The exchange date is the one that counts.

Unexchanged Contracts

A purchase that had not reached exchange of a binding contract by 10 August 2026 is generally not protected. A pre-approval, an established bare trust or signed finance documents did not secure the old rules on their own. A fund that set up its bare trust in July and exchanged on 12 August, for example, falls under the new rules.

Future Purchases

Grandfathering does not carry forward to the next purchase. Once a pre-ban loan is repaid or the property is sold, the fund cannot rely on that history to borrow for another residential property. Any new LRBA is assessed against the business real property requirement.

Ways Your SMSF Can Still Buy Property

An SMSF can still borrow where the property meets the business real property test, and it can still buy without borrowing. The routes that remain are:

Your Business Premises

A fund can buy the premises a member’s own business operates from and lease them back to that business at market rent. According to the ATO, business real property is an exception to the rule against acquiring assets from related parties, so the fund can buy the premises from the members or their business at market value.

Leasing business real property to a related party is also an exception to the in-house asset rules. Those rules otherwise cap in-house assets, including leases to related parties, at 5% of the fund’s total assets.

The lease generally needs to be in writing, on commercial terms and supported by evidence of market rent, with rent reviews applied and payments collected on time. Business owners still deciding whether the business should own its premises at all may want to weigh up buying versus leasing premises first.

Leased Commercial Property

Commercial property leased to an unrelated business on arm’s-length terms can also be bought with borrowing, provided the tenant’s use is wholly and exclusively for business. An office, warehouse, factory or shop let to a trading business may qualify. A building with meaningful non-business use may not.

Lenders usually weigh lease quality, tenant strength and remaining lease term as heavily as the fund’s balance. A commercial investment loan broker can compare how different lenders view the specific asset and lease before the fund signs.

Working Farmland

Farmland used in a primary production business can qualify as business real property, even where it includes a home. According to the ATO, a rural property with a dwelling used for private purposes may still qualify where two conditions are met. The dwelling must sit on no more than 2 hectares, and the main use of the whole property must not be domestic or private. Rural lending inside super is a narrow market, and lender appetite varies considerably.

Cash Residential Purchase

With enough cash, a fund can still buy residential investment property outright, but it generally cannot buy it from a related party, and no member or relative can live in or rent it. A single property may also absorb most of a fund’s balance, leaving little room for vacancies, repairs or pension payments.

Properties That Don’t Qualify for SMSF Borrowing

Many properties that appear suitable still fail the business real property test for an LRBA. The situations that most often catch trustees out are:

Shop With Upstairs Flat

A shop with a flat above it generally fails the test when the flat is occupied as a home. Under the ATO’s business real property ruling, SMSFR 2009/1, the test is applied to the actual use of the whole property. Minor non-business use may not disqualify a property, but a self-contained flat used as a residence is usually more than minor.

Vacant Commercial Property

An empty shop, office or warehouse may not qualify, because nothing on the property is used in a business when the loan is entered into. The same may apply to a vacant block bought for a future business. Building on that land raises a separate problem, as the ATO’s view is that borrowed money under an LRBA cannot fund improvements. A property with a business already trading from it is generally simpler to assess.

Short-Stay Rental Property

Holiday and short-stay letting of a residential property usually fails the test. SMSFR 2009/1 distinguishes short-stay arrangements that qualify from those that do not. A fund that simply rents a property to holiday guests, even through a letting agent, is generally treated as holding an investment.

The exceptions are narrow. An apartment leased to a resort operator that runs a genuine accommodation business across the complex may qualify, because the operator carries on the business. The outcome turns on the lease and management arrangements.

Commercially Zoned House

Zoning does not decide the test. A house in a commercial or mixed-use zone can still fail if its actual use is not wholly business, and so can a property marketed as commercial. A lender accepting a property as commercial security is making a credit decision, so the super test still needs to be checked separately.

Checks Before Your SMSF Borrows Again

Each step sits with a different professional, and finishing them before contracts are signed can decide whether the loan is compliant. The steps, and who usually handles each, are:

Exchange Date Check

Trustees part-way through a purchase that began before the ban can ask their solicitor to confirm in writing whether a binding contract was exchanged before 10 August 2026, and keep that confirmation on file for the fund’s auditor.

Investment Strategy Update

Moving from a residential plan to commercial property changes the fund’s risk, diversification and liquidity profile. The trustees and their SMSF adviser may need to update the written investment strategy, which many lenders ask to see.

Business Use Confirmation

Before signing a contract, trustees can ask their SMSF adviser or accountant to confirm in writing whether the property, and the way it will be used, meets the business real property test and is likely to keep meeting it.

Where the use is borderline, the ATO’s SMSF-specific advice service can provide the ATO’s written view on whether a particular property qualifies. The advice is not binding. Where a fund relies on it, however, the ATO generally administers the law in line with that advice. Requests may take time, and the ATO can decline to provide it.

Trust Structure Review

The fund’s trust deed needs to permit borrowing. The bare trust that will hold the property generally needs to be in place, with the correct trustee named, before the contract is signed, though timing can vary by state.

A solicitor can confirm both, along with the stamp duty treatment in the state where the property sits. A bare trust set up for a residential purchase that never proceeded may need review before it is used for a different property.

Lender Pre-Assessment

Lenders assess the fund’s balance, the rent against the repayments and the members’ guarantees. They also look at the liquidity left after the deposit and costs, with 10% to 20% of the property value a common working guide, depending on the lender.

A pre-assessment before exchange can show whether the numbers work for the specific property and which lenders are active for that asset type, before the fund pays for valuations and legal work.

Document the Property’s Business Use

A practical first step is to put the property’s facts in writing before speaking to an agent or lender. Cover its current and intended use, any residential or non-business area, who will occupy it and the proposed lease terms. Together, those facts give the fund’s adviser what they need to test it.

If you are weighing up whether a commercial property could suit your fund after the ban, the team at Loanworx Group can talk you through the options that suit your circumstances.

Frequently Asked Questions (FAQs)

1. Does the ban still apply if a related party lends to my SMSF?

Yes. The ATO has confirmed that the identity of the lender does not determine whether the property must be business real property. A loan from a member, relative or related company faces the same requirement as a loan from a bank.

Related-party loans must also be on arm’s-length terms. The interest rate, loan-to-value ratio or repayment terms may be more generous than a commercial lender would offer. In that case, the ATO may tax the property’s income as non-arm’s length income at the highest marginal tax rate of 45%.

2. Can an SMSF still borrow to buy shares or other assets that aren’t property?

It can, within the usual LRBA rules. The new requirement applies only when the asset acquired under an LRBA is real property.

Other assets a fund is permitted to hold are not subject to the business real property test, such as a parcel of identical listed shares bought as a single acquirable asset. Lender appetite for these arrangements is limited.

3. Can an SMSF borrow to buy a house used wholly as business premises?

Possibly. The ATO’s guidance states that residential real property can be acquired and financed under an LRBA where it meets the definition of business real property. The ATO’s business real property ruling includes the example of a house used wholly as a doctor’s surgery.

A converted house may qualify provided no part of it is used as a residence. The ongoing requirement still applies if the business later moves out.

4. What happens if the business tenant moves out during the loan?

A vacancy does not automatically end the property’s status. The ATO’s guidance indicates that leased commercial premises do not stop being business real property only because the owner is looking for a new tenant.

The position changes if the fund abandons plans to lease the property, at which point it no longer qualifies. Records of marketing, agent instructions and leasing enquiries may help show the property stayed available for business use.

5. Has the ban changed how much an SMSF can borrow for commercial property?

Not directly. The legislation does not set loan limits, so borrowing capacity for business real property remains a matter of lender policy.

Limits for SMSF commercial property are generally more conservative than for standard lending, and pricing varies between specialist lenders. Comparing several lenders against the same fund and property shows how far those terms can differ.

6. Is an off-the-plan residential contract signed before 10 August 2026 still protected?

Generally yes, provided the contract was binding and exchanged before 10 August 2026, even if completion is years away.

The practical risk sits with the finance. A lender’s appetite, the valuation at completion and the fund’s liquidity can all change before settlement. Trustees in this position may want to start lender conversations well before the expected completion date.

This article is general information only and does not take into account your objectives, financial situation or needs. The rules described are current as at October 2026 and may change. Before acting on any of it, you may wish to speak with a licensed financial adviser, an accountant or a solicitor about your fund’s circumstances.