SMSF Lending ban – What you need to know

During July, the ALP and the Greens struck a deal which shocked many to close the limited recourse borrowing arrangement (LRBA) exemption for self-managed superannuation funds. This move shocked many as banning SMSF loans or SMSF Property was not on the agenda.

It is important to note that the LRBA will impact only residential property – you will be able to borrow to buy commercial property. 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 – meaning contracts need to be entered into by 10 August 2026. 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 and how do they impact SMSF Property

The Superannuation Industry (Supervision) Act 1993 generally prohibits SMSFs from borrowing. In 2007, the government introduced an exemption that allowed SMSFs to use LRBAs to acquire SMSF Property, most commonly residential and commercial property. The exemption will be removed for residential property going forward – you will still be able to buy SMSF commercial property – key questions can be found here.

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 which will be 10 August 2026. Not ideal, but what can we expect from governments – other than last minute announcements based on a preference deal with zero consultation with the SMSF Industry.

Any SMSF LRBA where the purchase contract was signed before the commencement date of 10 August 2026 will continue to be treated under the current law. Grandfathering covers the entire arrangement, including the related trust structure, the limited recourse nature of the loan, and the underlying asset. This means that existing arrangements will be secured and any new purchase contract entered into before 10 August will be protected.

SMSF trustees with existing property loans

If you have an existing property loan, there is no action required however expect it to be harder to refinance going forward as you will expect withdrawal of lenders from the SMSF lending space.

Key takeaways

• Existing LRBAs are fully grandfathered under the proposed deal.
• Contracts signed before the commencement date of August 10 2026 are protected, even if settlement happens later. Lenders will support this.
• Trustees considering a new LRBA should act promptly (before August 10 2026)

As of 28 July 2026 – The ATO release guidance on the changes to the legislation here.

In summary, the LRBA closure is a significant policy change and will become law. If there is a change of government and they rescind the legislation, will SMSF lenders come back to this niche space. In any case, act quickly if you are looking to purchase a residential property in a SMSF as time is running out.

 

 

Disclaimer – The content has been prepared by Redwood Advisory Pty Ltd without taking account of the objectives, financial situation or needs of a particular individual and does not constitute financial product advice. This article should not be considered personal financial advice as it is intended to provide factual information only.