Major policy shift: SMSFs will no longer be able to borrow to invest in residential property via Limited Recourse Borrowing Arrangements (LRBAs) for new deals only unless for commercial purpose (i.e. SMSF lending for “business real property”).
The announced LRBA changes have raised questions from our brokers and these FAQs seek to address your questions and provide greater clarity.
Critical clarification for brokers: Understanding the main changes
The legislation does not explicitly ban all residential property. It instead restricts LRBAs to “business real property”.
Before 10 August 2026
- Residential LRBA allowed.
- Must exchange contract before 10 August 2026, which is the date the legislation comes into effect. This is 45 days after Royal Assent was granted by the Governor General on 26 June 2026.
On and after 10 August 2026
- Only ‘business real property’ allowed for funding of property purchasing within SMSFs.
- Must be:
- Wholly and exclusively used in one or more businesses.
- Some residential properties may be allowed, but only where it meets the “business real property” rule. I.e. Must be:
* 100% business use.
* No residential or private use component. - Some commercial properties may not be allowed, for example mixed use cases.
Why?
The test is use of the property, not asset type or zoning.
Zoning is irrelevant
- Being commercially zoned does not guarantee eligibility.
- Being residentially zoned does not automatically exclude it.
What brokers need to understand
The only test that matters: Actual use in a business
- A residential property used in a business may qualify as ‘business real property’.
- A commercial property not fully used for business may not qualify as ‘business real property’.
| Example scenario | Permitted |
|---|---|
| Serviced apartment | Serviced apartments are not generally considered business real property. These would be permitted if a contract is exchanged before 10 August 2026. From 10 August 2026, they will be considered residential use, even when income-producing and hence would not be permitted. |
| Airbnb | Airbnb would typically not be considered business real property because the property is being used as residential accommodation and the “business” component of renting would likely be characterised as letting/licensing occupancy for residential purposes. Likewise for short-stay accommodations, holiday letting. |
| Commercial property partially leased or partly residential | Not allowed |
| Off the plan | The test under the current bill is that existing LRBA arrangements will be grandfathered. If contracts are exchanged before 10 August 2026, this constitutes as existing LRBA arrangement commencing, even where settlement is scheduled to occur later. This relies on a genuine arrangement being contemplated, with an existing SMSF Trustee and Trust structure in place. |
|
Mixed-use properties
Examples include:
|
Allowed where contracts have been exchanged before 10 August 2026, would be acceptable to Granite under the current proposed legislation wording. Not permitted from 10 August 2026 onwards, even if it only incorporates a small residential component, as it will fail the “business real property” qualification. |
| Will any residential property still be allowed? | Potentially allowed but very limited and complex. Residential property MAY qualify if:
However:
|
“Wholly and exclusively” test is strict
- Even minor non-business use can disqualify.
- No tolerance for:
- Mixed-use.
- Dual-purpose assets.
- Residential components.
- Vacant or off-the-plan commercial property.
- Buildings with partial residential tenancy.
Impact on existing LBRA refinancing and different types of approvals
| Example scenario | Permitted |
|---|---|
| Commercial property partially leased or partly residential | Existing LRBAs entered into before 10 August 2026 are not affected by the new “business real property” condition. The amendment is not intended to apply to “maintaining or refinancing a borrowing under an arrangement entered into before commencement.” However, brokers should treat refinancing with caution: whether a refinance preserves grandfathered status is not settled and a refinance that materially alters or replaces the original arrangement may risk the borrowing being treated as a new LRBA and therefore subject to the business real property test. Specialist legal and SMSF advice should be obtained before any refinance proceeds. Where contracts were exchanged before 10 August 2026, a like-for-like refinance that does not alter the underlying arrangement is generally expected to remain permissible, subject to confirmation of grandfathered status on the specific facts. Where contracts are exchanged on or after 10 August 2026, any SMSF LRBA including a refinance will only be permitted for business real property. |
| Pre-approvals (approval in principle) & Unconditional approvals & Conditional approval | Granite’s approval in principle and conditional approval issued before 10 August 2026 remains valid for SMSF LRBA residential property applications up to and including 9 August 2026. Granite unconditional approval issued before the 10 August 2026 remains valid for SMSF LRBA residential property applications settling on and after the 10 Aug 2026. |
Key takeaway
Eligibility for SMSF lending post-legislative change is subject to the asset meeting the definition of ‘business real property’, which requires the property to be wholly and exclusively used in one or more businesses. This assessment may require independent legal or SMSF advice.
Please note:
- SMSF Trustees should obtain specific advice to ensure the property they are acquiring meets the definition of ‘business real property’ and ensure that they obtain pre-approval from their lender before entering into any purchase contracts.
Disclaimer
This is general information only and does not constitute financial or legal advice. Brokers and clients should speak to qualified SMSF specialists before making any decisions.
