LRBA legislative changes are much narrower than many early media reports suggested.
- LRBAs are not banned.
- SMSFs can still borrow under an LRBA.
- The key change is that from 10 August 2026, an LRBA used to acquire real property can only be used to acquire “business real property” (BRP).
Official ATO source is HERE
The practical effect is that:
- Existing residential property LRBAs are protected.
- New residential property purchases using an LRBA will generally not be allowed unless the property qualifies as business real property.
- Commercial property acquisitions through an LRBA can generally continue.
Main Rules from 10 August 2026
1. LRBAs are still permitted
The ATO expressly states:
| Limited recourse borrowing arrangements are not banned.
SMSFs may still borrow under an LRBA to acquire assets. The restriction relates specifically to real property acquired under an LRBA.
2. Real property purchased under a new LRBA must be Business Real Property
From 10 August 2026, LRBAs can only be used to finance real property if that property qualifies as business real property (BRP).
The ATO describes business real property generally as:
| Land and buildings used wholly and exclusively in a business.
Typical examples likely to qualify include:
- Factories
- Warehouses
- Offices
- Shops
- Commercial premises used in a business
3. The rules apply regardless of who the lender is
The restriction applies whether the lender is:
- A bank
- A non-bank lender
- A related party lender
The identity of the lender is irrelevant. If the arrangement is an LRBA, the same property rules apply.
Grandfathering Provisions
1. Existing LRBAs are protected
The changes do not apply where an SMSF:
- entered into an LRBA before 10 August 2026; or
- refinances that existing LRBA after 10 August 2026.
This means:
- Existing residential property LRBAs can continue.
- Repayments can continue.
- Existing loans can be refinanced.
- The property does not need to become business real property.
This is consistent with the grandfathering principles discussed in our earlier blog post HERE
2. Binding contracts signed before 10 August 2026 are protected
If an SMSF enters into a binding contract before 10 August 2026, the changes do not apply, even where:
- settlement occurs after 10 August 2026; or
- the LRBA itself is established after 10 August 2026.
The ATO provides an example of an off-the-plan acquisition where:
- contract signed before 10 August 2026
- finance approved afterwards
- settlement occurs 12 months later
The old rules still apply to acquisition.
This is arguably the most important transitional rule for trustees currently in the property acquisition process.
Ongoing Business Real Property (BRP) Requirement
1. The property must qualify as BRP when the LRBA starts
From 10 August 2026:
- the property must be business real property at the time the LRBA is entered into; and
- it must be wholly and exclusively used in one or more businesses.
If it is not BRP at commencement, the SMSF will have breached the borrowing rules.
2. The property must remain BRP for the life of the loan
This is a new and important compliance issue.
The ATO states that the property:
| must continue to be business real property for the entire life of the LRBA.
Therefore, an SMSF cannot simply acquire BRP and later convert it to another use while the LRBA remains outstanding.
3. What happens if BRP status is lost?
If a property financed under an LRBA ceases to be BRP:
- the SMSF fails the LRBA conditions;
- the fund breaches the borrowing rules; and
- ATO compliance action may apply.
The ATO does provide a practical example:
- a vacant commercial property being actively marketed for lease will generally remain BRP;
- if the owner abandons plans to lease the property, it may cease being BRP.
Residential Property after 10 August 2026
1. Residential property is not completely prohibited
This is another important point.
The ATO confirms that residential property can still be acquired under an LRBA if it itself qualifies as business real property.
Potential examples may include:
- residential premises genuinely used in a business;
- certain primary production properties.
However, ordinary residential investment properties generally would not qualify.
2. SMSFs can still buy residential property without borrowing
The changes do not stop SMSFs investing in residential property altogether.
The fund may still acquire residential property that is not business real property provided:
- all other SIS rules are satisfied; and
- no LRBA is used to finance the purchase.
Practical Implications for Advisers and Trustees
Situation | Outcome from 10 Aug 2026 |
|---|---|
| Existing residential LRBA | Grandfathered and can continue |
| Existing LRBA refinanced after 10 Aug 2026 | Allowed |
| Binding contract signed before 10 Aug 2026 | Grandfathered even if settlement later |
| New commercial property LRBA | Generally permitted if BRP |
| New residential investment property LRBA | Generally not permitted |
| Residential property purchased without borrowing | Still allowed |
| Property ceases to be BRP during loan | LRBA breach may occur |
Key Takeaway
The ATO’s final guidance confirms that the legislation is not an abolition of LRBAs. Rather, from 10 August 2026, LRBAs involving real property are essentially being confined to business real property acquisitions, while existing arrangements and contracts entered into before 10 August 2026 are broadly grandfathered.
Do you have questions about how these changes affect your super?
Our team of SMSF experts is here to help you gain strategic insights, avoid pitfalls, find answers to essential questions, and stay compliant and confident. Book a consultation today or call us on 1300 023 170.
Disclaimer: General information only. SuperConcepts does not provide financial product advice. Consider your circumstances and seek licensed advice where appropriate.
