As part of getting its Federal Budget changes passed through the upper house, the government did a deal with the Greens to address one of their longstanding issues – the use of Limited Recourse Borrowing Arrangements (LRBAs) by SMSFs to buy residential property.

Whilst the headlines are that this is an extension of the government’s drive on making housing more affordable, the percentage of residential property held by SMSFs is very low and unlikely to make any change to the property market entry point.

What is changing?

The amendment implemented provides an additional condition that must be met for an LRBA to be permitted – where the single acquirable asset is real property.  The change dictates that the asset must be “business real property”.

When will the LRBA ban start?

The change in the law will only apply from 10 August 2026 (45 days after the bill received royal assent).  The changes do not prevent an SMSF refinancing nor do they impact acquisitions where contracts are exchanged before 10 August (even if settlement doesn’t occur until after 10 August).

The definition of business real property is narrow and therefore mixed-use premises are unlikely to qualify.  Importantly, the changes do not prevent an SMSF from buying residential property, rather they prevent an SMSF using a loan to acquire residential property.  As such, SMSFs with cash balances can still acquire residential property.

So what can SMSFs use an LRBA for?

If an SMSF still wants to borrow, it can do so to acquire:

• Commercial property that meets the business real property definition; and / or
• Shares or units in managed investments

There are limitations and restrictions on the above acquisitions including the willingness of banks to provide funding and the associated interest rates given the borrowings have limited recourse.

If you have questions arising from these changes and how they affect you please reach out to your Engagement Partner.