The Treasury Laws Amendment (Tax Reform No. 1) Act 2026 has now received Royal Assent. The Act includes a new restriction on SMSF borrowing arrangements involving real property. Once the new rules commence, an SMSF will generally no longer be able to use a ( LRBA to acquire ordinary residential investment property.

Note:  This bulletin is not a recommendation to acquire property in an SMSF. It is an alert about an important legislative deadline for SMSF trustees who were already considering acquiring property using a limited recourse borrowing arrangement.

Many SMSF trustees have used limited recourse borrowing arrangements, commonly known as LRBAs, to acquire investment property inside their self-managed superannuation fund.

That opportunity is now being significantly restricted by the implementation and legislation of certain budget measures in the Treasury Laws Act.

What is changing?

Under the current LRBA rules, an SMSF can borrow to acquire a single acquirable asset, provided strict requirements are met. In practice, many LRBAs have been used to acquire residential or commercial real property.

The new legislation adds an additional requirement where the asset being acquired is real property. Once the new rule commences, the real property must be business real property within the meaning of the superannuation law.

In practical terms, this means that new SMSF LRBAs will no longer be available for ordinary residential investment properties, such as houses, units or apartments held for residential rental purposes.

SMSFs may still be able to use an LRBA to acquire commercial or business real property, provided the property satisfies the relevant definition and all other SIS Act requirements are met.

When does the new rule start?

The Act received Royal Assent on 26 June 2026.

The LRBA restriction commences on the 45th day after Royal Assent, which is 10 August 2026.

This means there is a limited period before the new rule starts.

What is protected?

The legislation is prospective. It is not intended to disturb existing residential property LRBAs entered into before commencement.

Importantly, the transitional provisions appear to protect an acquisition where the relevant acquisition arrangement is entered into before commencement, even if settlement occurs after commencement.

This means that, in many cases, the critical step is likely to be entering into a binding property contract before 10 August 2026.

For example, if an SMSF, through the correct bare trustee / custodian structure, enters into a binding contract to acquire residential property before 10 August 2026, the fact that settlement occurs after 10 August 2026 should not, of itself, cause the new restriction to apply.

That said, each case must be reviewed carefully. The structure, purchaser, borrowing documents, trustee resolutions and timing all matter.

Does the loan agreement also need to be signed before 10 August 2026?

Ideally, all LRBA documentation should be completed before commencement.

However, the transitional wording distinguishes between:

1. a borrowing arrangement entered into before commencement; and
2. the acquisition of an asset under an arrangement entered into before commencement.

This suggests that a binding pre-commencement contract of sale may be sufficient to preserve the position, even if the loan documentation is completed later.

That is not a reason to delay the loan documents unnecessarily. Where possible, it is our view that trustees should have the borrowing terms, bare trust deed, lender approvals and trustee resolutions prepared and documented before commencement.

Should trustees rush to buy before the deadline?

Not necessarily.

The fact that there is a closing window does not mean every SMSF should acquire residential property before 10 August 2026.

An LRBA is a significant long-term commitment. Before proceeding, trustees should consider:

• whether the acquisition is consistent with the fund’s investment strategy;
• whether the fund has sufficient liquidity to meet loan repayments, expenses, pension obligations and unexpected costs;
• whether the property is appropriate having regard to diversification, risk, likely return and member retirement objectives;
• whether the loan terms are commercial and on arm’s-length terms;
• whether the property will be acquired from a related party, which is generally prohibited unless a specific exception applies;
• whether the arrangement could give rise to non-arm’s length income issues;
• whether the fund deed permits the proposed borrowing and investment;
• whether the bare trust / holding trust structure is correctly established before contract; and
• whether stamp duty, land tax, GST, financing and insurance issues have been properly considered.

Are there anti-avoidance concerns?

There does not appear to be a special anti-avoidance rule that prevents trustees from relying on the express transitional window created by the legislation. In other words, if an SMSF enters into a genuine, binding and properly documented acquisition arrangement before commencement, that is precisely the type of arrangement the transitional provisions appear to preserve.

However, trustees should be very cautious about any arrangement that is artificial, incomplete, backdated, or entered into merely to create the appearance of being grandfathered.

Risk areas include:

• backdating contracts or resolutions;
• entering into a non-binding or conditional “placeholder” arrangement with no genuine commitment to acquire the property;
• signing a contract in the wrong name and attempting to correct the structure after commencement;
• changing the asset after commencement and claiming it is still the same protected arrangement;
• using related-party loans on non-commercial terms;
• acquiring residential property from a member or related party where no SIS Act exception applies;
• failing to establish the bare trust / holding trust structure correctly;
• using fund assets as security beyond what is permitted under the LRBA rules; or
• proceeding without proper investment strategy and liquidity analysis.

The ATO and fund auditor are likely to look closely at arrangements entered into close to the deadline. The best protection is a genuine transaction, commercially justifiable terms, accurate dates, proper execution, and complete contemporaneous records.

Existing residential LRBAs

Existing residential property LRBAs should generally be grandfathered.

The new legislation also appears to allow refinancing of a borrowing under a protected pre-commencement arrangement, provided the refinancing is genuinely connected with that existing arrangement and does not become a new borrowing to acquire a different residential property.

Trustees with existing LRBAs should still review their documents, particularly if they are considering refinancing, restructuring, changing lenders, or varying loan terms. If you are not sure, please reach out and contact Hill Legal’s SMSF team.

What should SMSF trustees do now?

If your SMSF is already considering a residential property acquisition using borrowed funds, you should obtain advice urgently. Hill Legal’s SMSF team is well-equipped to deal with all the legalities surrounding LRBA funding, SMSF Property Transactions, and SMSF compliance issues, including related party transactions, so if these affect you, don’t delay, call our office today on 03 5976 6500 or send us a message!