This week, the Labor Government and the Greens have agreed to close the limited recourse borrowing arrangement (LRBA) exemption for self-managed superannuation funds, which is generating a lot of noise. It is important to note that the LRBA closure is not yet law and is proposed to impact only residential property. The Greens have officially announced they will support an amended tax package, and part of that deal is closing the SMSF borrowing exemption.

What is not yet confirmed: The amendments still need to pass both houses of Parliament in their final form and receive Royal Assent to be locked in. Under the agreed deal, the change is prospective, meaning it applies only to new borrowing arrangements entered into after the commencement date. Existing LRBAs are fully protected, and there is a defined 45-day transition window for those already in the pipeline. This article explains what the proposed LRBA closure would mean for existing arrangements and how the grandfathering protections may work.

What the LRBA closure changes

The Superannuation Industry (Supervision) Act 1993 generally prohibits superannuation funds from borrowing. In 2007, the government introduced an exemption that allowed SMSFs to use LRBAs to acquire assets, most commonly residential and commercial property. Under the deal struck between Labor and the Greens on 23 June 2026, that exemption will be removed for new arrangements if the legislation passes.

Grandfathering for existing arrangements

The grandfathering provisions are the key protective mechanism, and both the Greens and Labor confirmed the change will be prospective and will protect contracts signed before the date of commencement. It will also provide time to finalise arrangements.

Any LRBA where the purchase contract was signed before the commencement date will continue to be treated under the current law. Note that the exact qualifying event (such as contract signing versus LRBA establishment) will be clarified in the final legislation. Grandfathering covers the entire arrangement, including the related trust structure, the limited recourse nature of the loan, and the underlying asset.

Trustees do not need to take any proactive steps to secure grandfathering. If your SMSF has an existing property loan structured as a compliant LRBA there is no requirement to restructure, refinance, or wind up your arrangement.

The 45-day transition window

Under the agreed deal, the proposed legislation includes a transition period of 45 days after Royal Assent. This window allows trustees who have already begun the process of establishing an LRBA to complete it. The exact date of commencement is uncertain and will depend on when Royal Assent occurs – it is expected to be mid-August 2026, if the bill passes. After that date, no new residential property LRBAs can be established.

If you are currently in the process of purchasing a property under an LRBA but have not yet signed the contract, you should speak with your SMSF specialist and lender as soon as possible. The key date is the signing of the contract, not the settlement.

What this means for SMSF trustees with existing property loans

For the vast majority of SMSF trustees who already hold property via an LRBA, the closure of the exemption is not of concern. You do not need to change your investment strategy, sell the property, or alter your borrowing arrangements. Your existing LRBA remains valid and compliant.

That said, it is always good practice to review your fund’s overall investment strategy and ensure it aligns with the fund’ assets and the sole purpose test. The LRBA closure does not change your ongoing obligations regarding the property, such as maintaining appropriate insurance, ensuring rental income is at market rates, and managing related-party loans at arm’s length. The ATO’s safe harbour interest rates for LRBAs are updated annually, and trustees should check the current rates against their loan terms to help avoid non-arm’s length income issues.

If you are in pension phase, retiring into a property owned by your SMSF involves additional planning. The LRBA closure does not directly affect that strategy, but you should seek advice on how to extricate the property from the holding trust in a tax-efficient manner when the time comes.

Key takeaways

  • Existing LRBAs are fully grandfathered under the proposed deal.
  • If your Fund owns residential property outright, or wish to use an LRBA for commercial property, you remain unaffected.
  • Contracts signed before the commencement date are protected, even if settlement happens later.
  • There is a 45-day transition window after Royal Assent to finalise arrangements that are already in the pipeline, assuming the legislation passes.
  • Trustees considering a new LRBA should act promptly and seek advice to determine if it is appropriate, noting the window may close.
  • The closure does not affect other aspects of SMSF compliance, such as the investment strategy or sole purpose test.

In summary, the LRBA closure is a significant policy change, but its practical impact on most SMSF trustees is minimal. If your fund already has an LRBA in place, you can continue with business as usual. If you were planning one, the window is still open but closing fast.

 

Disclaimer: This article is based on information available as at 23 June 2026. The legislation has not yet been published in final form. This is for general informational purposes only and does not constitute financial, legal, or tax advice. You should consult a licensed financial adviser, accountant, or legal professional before making any decisions regarding your self-managed superannuation fund. While every effort has been made to ensure accuracy, laws and regulations may change and individual circumstances vary.