LRBAs will soon be limited to business real property and exclude residential property (Revised version 20 July 2026)

By Daniel Butler, Nick Walker on 20/07/2026 in ATO, Limited recourse borrowing arrangements, SMSF compliance, SMSF strategy, Taxation, Trustee education

The Albanese Government’s deal with the Greens to secure passage of the first tranche of its major tax changes has placed limited recourse borrowing arrangements (LRBAs) back in the spotlight.

We outline below the press releases in which both parties reached agreement on changes to the LRBA rules, and discuss the amendment moved by Senator Nick McKim of the Greens to the Treasury Laws Amendment (Tax Reform No. 1) Bill 2026 (Bill), tabled in Parliament on 28 May 2026, relating to, among other things, the negative gearing and CGT changes (the first tranche of tax changes).

This article is an update to our prior article issued on 29 June 2026. Our comments in red reflect the further analysis that DBA Lawyers has provided for guiding clients.

The Bill passed both houses of parliament on 25 June 2026 and received Royal Assent on 26 June 2026. Accordingly, the restrictions on LRBAs are now law and the transitional period ends on 10 August 2026.

What did the recent announcements say?

The Greens’ press release on 23 June 2026 states that the Government has agreed to:

Close self-managed superannuation fund’s exemption from the prohibition on being able to borrow to fund investments.’

The media release issued by the Prime Minister (PM) on 23 June 2026 stated that the Government will support an amendment:

… to ban future … (LRBAs) for residential property by superannuation funds.

The Greens’ amendment to the Bill

Senator Nick McKim of the Greens moved an amendment to the definition of ‘acquirable asset’ in s 67A(2) of the Superannuation Industry (Supervision) Act 1993 (Cth) (SISA). This amendment provides that, where an asset is real property, it must be business real property within the meaning of s 66 of the SISA (see below). Simply put, this excludes any real property that is not business real property from being an acquirable asset for SMSFs.

Importantly, this change does not preclude an SMSF undertaking an LRBAs in respect of other acquirable assets such as shares in a company or units in a unit trust subject to the usual tests.

What is business real property?

Business real property is defined in s 66 of the SISA as the following:

(a) any freehold or leasehold interest of the entity in real property; or

(b) any interest of the entity in Crown land, other than a leasehold interest, being an interest that is capable of assignment or transfer; or

(c) if another class of interest in relation to real property is prescribed by the regulations for the purposes of this paragraph – any interest belonging to that class that is held by the entity;

where the real property is used wholly and exclusively in one or more businesses (whether carried on by the entity or not), but does not include any interest held in the capacity of beneficiary of a trust estate.

For example, a residential property that is used wholly and exclusively in one or more businesses will still be an acquirable asset under s 67A(2) following the amendment. However, a building which has an office and an apartment above, and is therefore partially used for residential purposes, will not be an acquirable asset.

There are a number of other circumstances where residential property can constitute business real property. We recommend that expert advice be obtained if there is any doubt.

What is an arrangement?

The amendment applies in relation to arrangements entered into on or after the commencement of the amendments, the important question is what will constitute an ‘arrangement’.

There are a number of possible events that might be considered essential to the commencement of an LRBA including:

The approval of finance.
The signing of a loan contract with the lender.
The drawdown of a loan.
The signing of the contract of sale to purchase a property.
The payment of the deposit.
The execution of the bare trust deed and related documents.
The settlement of the property.

Note that a contract of sale of real estate may be subject to certain conditions such as being subject to:

finance;
property inspection; and/or
zoning or another condition.

Broadly, for an SMSF arrangement to qualify as being entered into prior to 10 August 2026, it should not be subject to any condition precedent to the formation of a legally binding contract. A legally binding contract can have conditions subsequent. Whether a condition is a condition precedent or a condition subsequent is a matter of determination after a careful review of the contract and surrounding factual circumstances. This analysis is best undertaken by a lawyer. In particular, you should not assume that a contract of sale that is subject to finance involves a condition precedent and many are drawn to be conditions subsequent requiring the purchaser to use best efforts to apply for finance.

Off the plan arrangements also need to be carefully considered. For example, while an off the plan contract may be executed prior to 10 August 2026, settlement may typically follow 12 to 24 months after this time. This creates a range of compounding risks that trustees and their advisers must carefully consider. For example:

A lender may not be prepared to confirm and provide finance until the property is nearing completion.
A lender may also wish to withdraw their lending due to changed circumstances, eg, the value of the property has fallen or there are issues with the property. If the fund is required to find a new lender, query whether the same arrangement exists.
If the developer delays or the building does not proceed and contracts are rescinded, a question arises as to whether the replacement contract or amended terms are entered into before or after 10 August 2026.

Understandably, the lack of any guidance setting out what constitutes an arrangement means it is not clear at this stage what circumstances will constitute an ‘arrangement’. Expert advice should therefore be obtained.

When will the changes commence?

The amendment expressly states that the change will be prospective, will protect contracts signed before commencement and will take effect 45 days after royal assent.

With the amening legislation receiving royal assent on 26 June 2026, the transitional arrangements for LRBAs ends on 10 August 2026. This does not allow much time to ensure arrangements are implemented prior to this deadline.

Transitional aspects

Acquisitions entered into before commencement will be possible, even where settlement occurs after commencement. However, as noted above, care will need to be taken to ensure the relevant parts of the arrangement are satisfied to qualify under the transitional rules.

An LRBA entered into before commencement may need to be refinanced afterwards and the amendment is designed to provide this flexibility. However, there are a number of rules that need to be satisfied for refinancing an existing LRBA to be grandfathered and expert advice should be obtained.

Where to from here?

If residential property borrowing by SMSFs is being targeted because of perceived housing market impacts, it remains unclear why LRBAs will not be permitted for newly constructed housing to increase the potential supply of residential accommodation.

In particular, the Government is allowing negative gearing and the 50% CGT discount on new acquisitions of residential dwellings acquired by individuals (outside SMSFs) after its 12 May 2026 Budget. However, these two tax changes apply to established residential dwellings acquired after 7.30pm on 12 May 2026, as reflected in Schedule 2 of the Bill.

There are a number of reasons why SMSFs should be allowed to continue to borrow to invest in new residential dwellings if the Government is keen on increasing the supply of housing in Australia.

There are a number of tax concessions granted for large Build to Rent (BTR) developers to increase housing in Australia including:

an accelerated deduction of 4% for capital works relating to BTR developments; and
a concessional final withholding tax rate of 15% on eligible fund payments.
Some states and territories also offer tax incentives to BTR developers (eg, in Victoria, where land tax is calculated at the reduced rate of 50% of the taxable value of the land).

The PM states in its press release of 23 June 2026:

These [LRBA] arrangements constitute less than 1 per cent of total residential property borrowing and less than half a per cent of new residential borrowing each year.

Thus, providing the ability for SMSFs to continue to undertake LRBAs for new residential property is consistent with Government policy and would add to the supply of housing in Australia.

Lack of consultation and transition

As of March 2026, there were now 672,805 SMSFs and 1,239,977 members with total estimated assets of $1.06 trillion.[1] The above ‘agreement’ was undertaken without any consultation with this important SMSF sector that accounts for around 25% of Australia’s total retirement savings. Moreover, the SMSF Association has labelled this change as a case of political ‘deal making’.

Conclusions

Moving forward, until the amendment is finalised as law, we recommend that expert advice be obtained before proceeding with new or refinanced LRBA arrangements to make sure they satisfy the proposed changes.

DBA Lawyers is closely monitoring developments and will provide further updates as details emerge via its monthly SMSF Online Update webinars and regular monthly newsfeeds.

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