SMSF property guide
Self managed super fund property: the SIS Act and 2026 LRBA rules
By easySMSF, SMSF Specialist Team · Updated
Holding direct property inside a Self-Managed Super Fund is one of the most popular reasons Australians establish an SMSF — but it's also the area where the most expensive compliance breaches happen. From 10 August 2026, new Limited Recourse Borrowing Arrangements over real property are limited to business real property, so new residential SMSF loans are no longer possible; existing residential LRBAs are grandfathered. This guide covers the rules that decide whether your fund can hold a given property: the sole purpose test, the related-party prohibition, the Business Real Property exception, and the LRBA framework as it now stands.
New FY kickoff — 50% off SMSF setup (limited time)
Limited-time new financial year offer — 50% off Individual and Corporate Trustee setup fees. Ends midnight AEST, 30 September 2026.
The five rules that decide everything
Rule 1 — Sole purpose (s62 SIS Act). The property must exist to provide retirement benefits to members, full stop. No current-day use by you, your family, or anyone else connected to the fund. A holiday house the trustees occasionally use is a textbook breach, even when paying 'market rent'.
Rule 2 — No acquiring from related parties (s66). The fund cannot buy a residential property from a member, a relative or any related entity. The single major exception is Business Real Property — real estate used wholly and exclusively in one or more businesses. BRP can be acquired from a related party at market value and is the foundation of most small-business SMSF property strategies.
Rule 3 — In-house asset cap (s71, 5%). A residential property the SMSF rents to a relative is a strict-liability breach with no 5% exemption. A Business Real Property leased to a related-party business is not an in-house asset regardless of value, provided the lease is at arm's-length market rent.
Rule 4 — Borrowing only via an LRBA (s67A/B). The fund cannot borrow money except under a Limited Recourse Borrowing Arrangement. The borrowed property must sit in a bare trust, the lender's recourse is limited to that single asset, and borrowed funds can only be used for the acquisition cost (plus repairs and maintenance) — not improvements that change the asset's character.
Rule 5 — New LRBAs over real property are limited to business real property (from 10 August 2026). Under the Treasury Laws Amendment (Tax Reform No. 1) Act 2026, an SMSF cannot enter into a new LRBA to acquire residential property on or after 10 August 2026. Residential LRBAs entered into before that date are fully grandfathered and can continue on their existing terms, and easySMSF administers them as normal. Residential property can still be bought outright with fund cash.
- Sole purpose test (s62) — no current-day use of the property
- No related-party acquisitions of residential property (s66)
- Business Real Property is the one related-party exception
- New residential LRBAs prohibited from 10 August 2026
- Pre-10 August 2026 residential LRBAs grandfathered and fully administered
- Arm's-length market rent at every lease and every renewal
- Bare trust holds title until the LRBA loan is fully repaid
- Borrowed funds can repair and maintain, never improve, the asset
- Independent valuation at acquisition and every annual audit
Frequently asked questions
General advice warning
Figures shown are illustrative only and based on the inputs and assumptions you provide. They are general information, not personal financial product advice. Consider your objectives, financial situation and needs, and seek personal advice from a licensed financial adviser before acting. easySMSF does not hold an Australian Financial Services Licence (AFSL).