If you have been planning to use your self-managed superannuation fund to buy an investment property with borrowed money, a recent change to superannuation law may affect your plans. For SMSF trustees, decisions about how to invest retirement savings are among the most important they will make, and understanding the new rules is the first step to making them well.

Parliament has now passed legislation that prohibits self-managed superannuation funds (SMSFs) from entering new limited recourse borrowing arrangements to purchase residential property. Below, we explain what has changed, who is affected, and what options remain.

What has changed?

The Treasury Laws Amendment (Tax Reform No. 1) Bill 2026 received Royal Assent on 26 June 2026. As a result, new limited recourse borrowing arrangements (LRBAs) for residential property will be banned from 10 August 2026, being 45 days after Royal Assent.

The measure was agreed as part of a wider tax reform package, and formed part of an arrangement with the Australian Greens to secure the passage of that package through the Senate. The Government has noted that borrowing of this kind represents a small part of the market, with SMSFs accounting for less than 1 per cent of residential property borrowing.

What is a self-managed superannuation fund?

An SMSF is a private superannuation fund that its members manage themselves. In most cases the members, or a related party, are also the trustees. That means they are responsible for making investment decisions and for ensuring the fund complies with superannuation and tax laws. An SMSF can invest in a range of assets, including shares, cash, managed funds and property.

This differs from a traditional industry or retail super fund, where investment decisions are generally made by professional fund managers. Members of those funds choose from investment options, but they do not directly control the fund’s assets. An SMSF gives members more control, but it also carries more responsibility, administration and compliance obligations.

What is a limited recourse borrowing arrangement?

An LRBA is a specific type of borrowing permitted under superannuation law. It has allowed an SMSF to borrow money to buy a single asset, such as a residential property. The property is usually held by a separate trustee, often called a bare trustee, until the loan is repaid.

The lender’s rights are “limited recourse”. This means that if the SMSF defaults, the lender can generally only recover against the property purchased with the loan, and not against the fund’s other assets.

What the change does, and does not, do

Under the new rules, SMSFs can no longer enter into new LRBAs to purchase residential property once the ban commences. The change is prospective, so it applies to new arrangements going forward.

Importantly, the change does not:

• abolish SMSFs;
• force the sale of residential property already held through an existing LRBA; or
• prevent an SMSF from buying residential property outright, without borrowing, where that fits the fund’s investment strategy.

Existing arrangements entered into before the commencement date are intended to be preserved, and borrowing for commercial property that meets the business real property tests generally remains available under the current rules. The precise treatment of any particular arrangement will depend on its detail, so careful review is important.

What this means for SMSF trustees

For trustees, the practical effect can be significant. A strategy that previously involved combining superannuation savings with borrowed funds to buy an investment apartment or house may no longer be available for new purchases once the ban takes effect.

Trustees considering their next steps may wish to look at alternative investments permitted under superannuation law, such as shares, managed funds, cash, term deposits, or commercial property that meets the relevant tests. Whether any of these suits your circumstances depends on your fund’s objectives and your broader retirement planning.

Thinking of rushing a purchase before the deadline?

A transition period applies, and arrangements that are already well progressed before commencement may be protected. However, extreme caution is warranted. Establishing an SMSF borrowing arrangement takes time, and a property that only makes sense because of a looming deadline may not make sense at all. A deadline is a reason to seek advice promptly, not a reason to compromise on the quality of an investment decision.

How this fits with other recent changes

This change follows other adjustments to property and investment tax settings. The same reform package removes the 50 per cent capital gains tax discount for affected assets from 1 July 2027, replacing it with a cost base indexation method, and tightens negative gearing for future investment properties while preserving existing arrangements. Separately, the Government announced in the May 2026 Federal Budget a proposed minimum tax on certain discretionary trust distributions, expected to begin from 1 July 2028, although that measure has not yet been legislated and its detail may change.

Taken together, these changes make it more important than ever to review how your investment and retirement structures are set up.

Get advice before you act

If you are an SMSF trustee weighing up a property decision, or you want to understand how these changes affect your fund, it helps to get clear, practical guidance before you act. Bateman Battersby has guided Western Sydney families, individuals and businesses through important legal and structural decisions since 1991.

Contact our experienced team to discuss your situation.