The Australian Taxation Office (ATO) has released updated guidance explaining how the new Limited Recourse Borrowing Arrangement (LRBA) rules will apply from 10 August 2026.
The guidance confirms that the changes are not retrospective and explains when existing and future LRBAs will be affected.
Existing LRBAs
The new rules do not apply where an SMSF entered into an LRBA to finance the acquisition of real property before 10 August 2026.
The ATO has also confirmed that the changes do not apply where the SMSF maintains or refinances that LRBA on or after 10 August 2026.
For these arrangements, if the asset financed under the LRBA is real property, it does not need to be business real property.
The ATO considers refinancing an LRBA to mean entering into a new loan contract for the same asset, with either the existing lender or a new lender.
Binding contracts entered into before 10 August 2026
The new rules also do not apply where an SMSF entered into a binding contract to acquire real property before 10 August 2026, even if:
- settlement occurs on or after 10 August 2026; or
- the LRBA is entered into on or after 10 August 2026.
In these circumstances, the real property does not need to be business real property.
The ATO notes that later variations to the contract will generally not change this outcome. However, where changes are so significant that the original contract’s fundamental terms no longer exist, the arrangement may be regarded as a new acquisition arrangement.
New LRBAs from 10 August 2026
For LRBAs entered into on or after 10 August 2026, real property acquired under the arrangement must be business real property at the time the LRBA is entered into.
Broadly, business real property refers to land and buildings used wholly and exclusively in one or more businesses.
If the property does not satisfy this requirement when the LRBA is entered into, the SMSF will breach the borrowing provisions and the ATO may take compliance action.
The ATO refers trustees to Self-Managed Superannuation Funds Ruling SMSFR 2009/1 for further guidance on what constitutes business real property.
The property must remain business real property
Where the new rules apply, the property must continue to be business real property for the entire life of the LRBA.
This means the property must continue to be used wholly and exclusively in one or more businesses throughout the borrowing arrangement.
If the property ceases to meet this requirement during the life of the LRBA, the SMSF will no longer be maintaining the LRBA in accordance with the law and compliance action may apply.
Temporary vacancies
The ATO acknowledges that commercial property may occasionally be vacant.
For example, where commercial premises are temporarily without a tenant while the owner is actively seeking a new tenant, the property will not cease to be business real property solely because it is vacant.
However, if the owner abandons plans to lease the property for business use, it will no longer be business real property.
Can residential property still be purchased under an LRBA?
Yes, but only if it satisfies the definition of business real property.
Where residential real property qualifies as business real property, it may be acquired and financed under an LRBA. It must satisfy the business real property requirements when the LRBA is entered into and continue to do so throughout the life of the arrangement.
An SMSF may still acquire residential real property that is not business real property (provided all other superannuation rules are met), but it cannot be financed under an LRBA entered into on or after 10 August 2026.
No changes to how LRBAs generally operate
The ATO has confirmed that there have been no changes to the way LRBAs generally operate or to the existing exceptions to the prohibition on borrowing by SMSFs.
LRBAs have not been banned. SMSFs can still borrow or maintain borrowings under an LRBA where the legislative requirements are satisfied.
The key change is that, for LRBAs entered into on or after 10 August 2026, real property acquired under the arrangement must be business real property.
These requirements apply regardless of whether the lender is:
- a bank;
- a non-bank lender; or
- a related party.
The identity of the lender does not determine whether the business real property requirement applies.
Primary production land
The ATO also confirms that real property used in a primary production business may still qualify as business real property where it contains a dwelling used for private or domestic purposes.
This concession may apply where:
- any dwelling used for private or domestic purposes is situated on an area of land of no more than two hectares; and
- the main use of the overall property is not for private or domestic purposes.
Key takeaways
The ATO’s updated guidance provides greater certainty for SMSF trustees considering or currently using an LRBA.
- Existing LRBAs entered into before 10 August 2026 are unaffected by the new rules.
- Binding contracts exchanged before 10 August 2026 continue to receive transitional treatment, even where settlement or the LRBA occurs after that date.
- LRBAs entered into on or after 10 August 2026 can still be used to acquire real property, provided the property is business real property at the time the LRBA is entered into and remains business real property throughout the life of the borrowing.
As these changes may significantly affect SMSF borrowing strategies, trustees should seek professional advice before entering into a new LRBA.
This article contains general information only and does not constitute financial, taxation or legal advice. You should obtain professional advice before making decisions regarding your SMSF.