The 2026 LRBA ban on residential property: what actually changed

The 2026 Federal Budget measure, legislated as part of the Treasury Laws Amendment (Tax Reform No. 1) Act 2026, changes one specific thing: from 10 August 2026 an SMSF can no longer enter into a new limited recourse borrowing arrangement (LRBA) to acquire residential property. Everything else about SMSF property investing is unchanged, and a lot of the commentary since the announcement has overstated the reach of the measure.

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01What is prohibited

New LRBAs entered into on or after 10 August 2026 where the acquirable asset is residential property. The prohibition is tied to the date the arrangement is entered into, not the date the property settles or the date the fund first considered the purchase.

02What is grandfathered

Residential property held under an LRBA entered into before 10 August 2026 is fully grandfathered. The fund can keep the asset, keep the loan, keep making repayments, and keep the bare trust in place until the loan is repaid and title transfers to the fund.

• Existing loans can run to their contracted end date.
• Refinancing an existing arrangement on equivalent terms does not create a new acquisition — but get advice before restructuring, because varying the acquirable asset or drawing extra funds can break grandfathering.
• The property can be sold at any time; once sold, the grandfathered borrowing capacity is gone.
• Ordinary compliance rules continue to apply: arm's-length terms, no member or relative occupancy, market-value reporting each year.

03What is still allowed

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• LRBAs to acquire commercial property (business real property) — completely unaffected.
• Outright, non-geared purchases of residential property using the fund's own cash.
• Related-party loans for permitted arrangements, provided the terms are arm's length (see ATO PCG 2016/5 safe harbours).
• Existing bare trust structures for grandfathered residential holdings.

04Why the distinction matters for your fund

The practical effect is a change in sequencing. Funds that want residential exposure now need the cash in the fund before they buy, which usually means a longer accumulation runway, rollovers from an existing fund, or contributions planned across multiple financial years. Funds targeting commercial property — including your own business premises — can continue to gear exactly as before.

05What trustees should do now

• If you hold a pre-10 August 2026 residential LRBA, document the entry date and keep the original loan agreement and bare trust deed accessible for your auditor.
• If you were planning a geared residential purchase, model the outright-purchase path instead, or consider commercial property if it suits your strategy.
• Review your investment strategy so it reflects the current rules rather than the pre-2026 borrowing assumption.
• Check any advice or marketing material dated before August 2026 — much of it is now out of date.

If you are unsure whether your arrangement is grandfathered, the safest first step is a document review. We do this as part of onboarding for funds that switch to us.