To ensure the passage of the negative gearing and CGT discount changes announced in the May 2026 Federal Budget, the Government agreed to make amendments to the SMSF borrowing rules.
SMSFs are able to borrow in restricted circumstances, including borrowing under a Limited Recourse Borrowing Arrangement (LRBA) to purchase a single acquirable asset. While there have previously been no specific legislative restrictions on the type of asset an SMSF can borrow to purchase, LRBAs are most commonly used to purchase property. Up until now, this could have been any type of real property.
These amendments mean that when SMSF trustees wish to borrow to purchase a property, it must meet the business real property (BRP) definition. This definition relates to the use of the property rather than its zoning or what the property was originally built for.
This change became law on 26 June 2026, but the Bill includes a 45-day transitional period, which will finish on 10 August 2026. This transitional period may allow arrangements that are currently being implemented on non-BRP assets to remain allowable under the new rules where settlement occurs after 10 August 2026, provided the arrangement to purchase the property was entered into on or before 10 August 2026.
We recommend that SMSF trustees who are currently implementing LRBA arrangements involving non-BRP assets seek specialist SMSF legal advice to ensure their arrangements meet the transitional rules.
While this change has been referred to in the media as a ban on super funds borrowing to purchase residential property, the use of the BRP definition makes the change slightly more complex than this.
As the definition relates to the use of the property, it is possible that some residentially designed properties could meet the BRP definition. For example, this could include a medical practice operating from a residentially designed terrace dwelling.
The BRP definition also requires that the property is wholly and exclusively used for business purposes. This could mean that some properties that may initially appear to be commercial in nature may not meet the BRP definition. For example, this could include a mixed-use residential and retail property on a single title.
We recommend that SMSF trustees entering into new LRBAs seek advice from specialist legal and financial advisers to ensure the new requirements are met.
Existing arrangements
The updated rules allow existing LRBAs over non-BRP assets to continue. They also allow existing arrangements to be refinanced, subject to lender availability and approval.
If you have questions, please do not hesitate to contact our office to speak to one of our team.
