Changes to Self Managed Super Fund (SMSF) borrowing rules
To ensure passage of the negative gearing and CGT discount changes announced in the May 2026 Federal Budget, the Government agreed to amend the SMSF borrowing rules.
What has changed?
SMSFs can borrow in restricted circumstances, including through a limited recourse borrowing arrangement (LRBA) to purchase a single acquirable asset. There were previously no specific legislative restrictions on the type of asset an SMSF could borrow to purchase, although LRBAs have most commonly been used to purchase property. Until now, this could have been any type of real property.
Under the amendments, when SMSF trustees borrow to purchase property, it must meet the business real property (BRP) definition. That definition relates to how the property is used, rather than its zoning or original design.
The change became law on 26 June 2026. The Bill included a 45-day transitional period that ended on 10 August 2026. This may allow arrangements involving non-BRP assets that were already being implemented to continue where settlement occurred after 10 August 2026, provided the arrangement to purchase the property was entered into on or before that date.
SMSF trustees who were implementing LRBA arrangements for non-BRP assets should seek specialist SMSF legal advice to confirm that their arrangements meet the transitional rules.
Why the BRP definition matters
The change has been described in the media as a ban on super funds borrowing to purchase residential property, but the use of the BRP definition makes it more nuanced.
Because the definition relates to use, some residentially designed properties may still qualify. For example, a medical practice operating from a residentially designed terrace dwelling could potentially meet the BRP definition.
The property must also be wholly and exclusively used for business purposes. This means some properties that appear commercial may not qualify—for example, a mixed-use residential and retail property held on a single title.
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.
We recommend that SMSF trustees entering into new LRBAs seek advice from specialist legal and financial advisers to ensure the new requirements are met.
