What your SMSF can still borrow to buy after 10 August 2026

Two things are being said about the 10 August 2026 change, and they cannot both be right. One is that self-managed super funds can no longer borrow. The other is that nothing much has changed if you were buying commercial anyway. The first is wrong, the second is close but leaves out the part that catches people.

Here is the actual position, from the ATO’s own guidance, and what it means if your fund is about to buy.

What changed on 10 August 2026

A limited recourse borrowing arrangement — an LRBA — is the structure that lets an SMSF borrow at all. Superannuation law starts from a prohibition: as a general rule an SMSF must not borrow money. The LRBA is one of a small number of exceptions, and it works by holding the asset in a separate holding trust, with the lender’s recourse limited to that asset and nothing else in the fund.

From 10 August 2026, one thing about that exception changed. In the ATO’s words: “Limited recourse borrowing arrangements (LRBAs) entered into on or after 10 August 2026 to purchase real property, can only be used to acquire business real property.”

That is the whole change. The ATO is explicit that there are no changes to how LRBAs operate, and none to the other exceptions to the borrowing prohibition. Its guidance carries a heading that says so in as many words — “LRBAs are not banned” — followed by: “SMSFs can still borrow or maintain a borrowing under an LRBA to acquire an asset. However, the changes restrict real property assets to business real property.”

So the fund can still borrow. What it can borrow for, when the asset is real property, is narrower than it was.

What “business real property” actually means

This is the term the whole change turns on, and it is stricter than “commercial property” in everyday usage.

The ATO’s short definition: business real property “generally means land and buildings used wholly and exclusively in a business”. The detailed version, with the examples that matter at the edges, is in Self-Managed Superannuation Funds Ruling SMSFR 2009/1.

Three words in that definition do the work.

Used. Not zoned, not intended, not capable of being used. The test is about actual use at the relevant time.

Wholly. The whole of the property. A warehouse with a manager’s flat upstairs is not automatically business real property because most of it is a warehouse.

Exclusively. In one or more businesses, and not partly in something else. A shop with the owner living behind it is the classic failure case.

There is one carve-out written into the law, and it is for primary production. Real property used in a primary production business that contains a dwelling used for private or domestic purposes can still be business real property if the dwelling sits on an area of land no more than two hectares, and the main use of the whole property is not domestic or private. A farm with a farmhouse on it is the case that provision exists for.

Note what the definition does not say. It does not say “commercial”. A residential property can be business real property if it genuinely meets the test — the ATO says so directly: “If the residential real property meets the definition of business real property, these can be acquired and financed under an LRBA.” That is a narrow door, and walking through it needs the ruling and an adviser, not a rule of thumb. The ordinary residential investment — a townhouse, an apartment, a house rented to a tenant — is not business real property, and from 10 August 2026 a new LRBA cannot be used to buy one.

Which arrangements are untouched

Grandfathering is broader than most of the commentary suggests, and this is where reading the ATO page carefully is worth ten minutes.

The changes do not apply if the fund has already entered into an LRBA to finance a real property acquisition before 10 August 2026, and it maintains or refinances that LRBA on or after that date. The ATO defines refinancing here as “entering into a new loan contract for the same asset, with the same or a new lender”. So an existing residential LRBA can be refinanced, including to a different lender, without the asset having to become business real property.

The changes also do not apply if the fund exchanged a binding contract to acquire the real property before 10 August 2026 — even if settlement happens later and even if the LRBA itself is entered into afterwards. The ATO’s own example is an off-the-plan contract exchanged before the date, finance approved after it, settlement twelve months later: not caught.

The qualification on that is worth reading twice. Later variations of the contract generally do not change the position, but the ATO adds: “if a contract is changed significantly and the fundamental terms no longer exist, it may be considered that a new arrangement has begun”. If you are renegotiating a pre-August contract, that sentence is the one to put in front of your adviser before you sign the variation.

It has to stay business real property

This is the requirement that turns a purchase decision into an ongoing obligation, and it is the one most likely to bite a fund years after settlement.

The asset must be business real property at the time the LRBA is entered into, and it must remain business real property for the entire life of the LRBA. The ATO states both, and states the consequence of failing either: “the SMSF has breached the law against borrowing and compliance action may apply.”

A breach of the borrowing prohibition is not a paperwork problem. The ATO’s published range of responses to an investment-restriction breach runs to penalties, making the fund non-complying, disqualifying trustees and prosecution.

What that means in practice is that the property’s use has to be watched for as long as the loan runs. The ATO gives one piece of comfort and one warning in the same paragraph: if the property is land with leased commercial premises on it, “the property will not stop being business real property only because the owner is looking for a new tenant” — but “if the owner abandons plans to lease the property, the property will no longer be business real property”.

So a vacancy between tenants is not the problem. A vacancy that quietly becomes a decision to stop leasing is.

What a lender is actually assessing

None of the above is the lender’s test — it is the superannuation test, and it applies whether or not there is a loan. Sitting alongside it is credit assessment, and SMSF commercial lending is its own discipline.

A few things are typical of how this lending is assessed. They are lending norms rather than published rules, so treat them as what to expect rather than what is guaranteed:

• Leverage is more conservative than for the same property held outside super. Lenders price and size SMSF facilities knowing their recourse stops at the asset in the holding trust.
• The fund’s liquidity after settlement matters as much as the purchase. Lenders typically want to see that contributions and rent cover the repayments with a margin, and that the fund is not left with a single illiquid asset and no buffer.
• A corporate trustee is usually expected, and some lenders require one.
• Personal guarantees from the members are common, structured so they do not disturb the limited-recourse character of the loan.
• The structure has to be right before settlement, not after. The holding trust and the bare trust deed are part of the transaction, and getting them wrong is expensive to unwind.

We have written more about how this works in practice on our page on SMSF commercial property loans, including what lenders look for in the fund itself.

An illustrative example

This scenario is hypothetical and is here to show how the pieces fit together. It is not a client, not an offer, and not a prediction of what any lender would do.

Say a fund owns no property and its members run a physiotherapy practice from leased rooms. The practice’s landlord offers to sell them the suite. The fund wants to buy it and lease it back to the practice.

The suite is used wholly and exclusively in a business, so it is capable of being business real property — which means a new LRBA can be used to acquire it, and the 10 August 2026 change does not stand in the way. Because it is business real property, it is also one of the exceptions to the rule that an SMSF cannot acquire an asset from a related party, provided the price reflects market value.

The parts that still need work are the ordinary ones: whether the fund’s contributions and the lease cover the repayments with room to spare, whether the members are comfortable with a guarantee, whether the trust deed permits borrowing, and what happens to the fund if the practice ever moves out. That last question is not hypothetical any more — it is the “must remain business real property” obligation.

What to do before you talk to a lender

In this order:

1. Test the property against SMSFR 2009/1, not against your instinct. “Commercial” is not the standard. “Used wholly and exclusively in one or more businesses” is.
2. Check the date on any existing arrangement. If the fund entered an LRBA or exchanged a binding contract before 10 August 2026, the old position holds — and refinancing does not disturb it.
3. Get the fund’s trust deed and investment strategy looked at. Borrowing has to be permitted by the deed and consistent with the strategy. Neither is a formality.
4. Have the accountant model the fund after settlement, not at it. Liquidity in year three is what fails, not the deposit.
5. Ask what happens if the tenant leaves. For a fund holding a single leased commercial asset under an LRBA, that is both a cash-flow question and a compliance one.

Then, and only then, is it a finance question — which is the part we can help with. If your fund is weighing a purchase, book a call and we will look at the structure and the lending together.