Grandfathered LRBA compliance checklist for 2026 and beyond

If your SMSF entered a residential LRBA before 10 August 2026, the arrangement is grandfathered and can continue. Grandfathering is not unconditional though — it protects the existing arrangement, not a materially different one you create later. This checklist covers what to keep, what to avoid, and what your auditor will ask for each year.

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01Evidence to hold on file permanently

• The executed loan agreement, showing the date the arrangement was entered into.
• The bare trust (holding trust) deed and evidence it was executed before the contract of sale.
• The contract of sale and settlement statement.
• Board minutes recording the trustees' decision to enter the arrangement.
• Any refinance documentation, with a note explaining that the acquirable asset was unchanged.

02Annual audit checklist

• Market valuation of the property supported by objective, verifiable data.
• Loan statements showing repayments made in line with the agreement.
• Rental income at market rates, with a lease or agent statements as evidence.
• Confirmation no member or relative occupies the property.
• For related-party loans, evidence the terms remain within ATO PCG 2016/5 safe harbours, or a written justification that the terms are otherwise arm's length.

03What can put grandfathering at risk

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• Changing the acquirable asset — grandfathering attaches to the specific arrangement and property.
• Drawing additional funds under the loan to acquire something else.
• Using borrowed money for improvements that change the character of the asset (borrowings can only fund maintenance and repairs — see SMSFR 2012/1).
• Letting a related-party loan drift off arm's-length terms, which can bring the entire rental income and any capital gain into non-arm's-length income taxed at 45%.

04When the loan is repaid

Once the loan is fully repaid, title can transfer from the bare trustee to the SMSF. This is generally not a CGT event and, in most states, attracts nominal duty — but the paperwork must be done properly and the holding trust then wound up. Record the transfer in the fund's accounts in the year it occurs.

05If you want out

Selling the property is always available. Be aware that once a grandfathered arrangement ends, it cannot be recreated — a replacement residential purchase would have to be funded with the fund's own cash.