SMSF Residential Property Borrowing Banned: What It Means for New and Existing Funds
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Written by Christopher Hall, AdvDipFP | Authorised Representative, AFSL 526688 | June 2026
SMSF Residential Property Borrowing Banned: What It Means for New and Existing Funds
New residential property borrowing inside a self-managed super fund is being banned. From a date 45 days after the legislation receives royal assent, self-managed superannuation funds (SMSFs) will no longer be able to enter a new limited recourse borrowing arrangement (LRBA) to buy a residential investment property. Existing arrangements are grandfathered, commercial property borrowing is untouched, and the change is prospective only — it does not unwind a single existing loan. The measure was agreed between the Government and the Australian Greens on 23 June 2026 as the price of passing the Government's broader investor tax package through the Senate (Chalmers, 2026).
For more than 672,000 SMSFs in Australia — holding around $1.06 trillion in assets between close to 1.24 million members (ATO SMSF quarterly statistics report, March 2026) — the question that matters is not whether the headlines sound dramatic. It is a narrower one: does this change anything for a particular fund, and if so, what?
What is changing, and when
Under current rules, an SMSF is one of the few superannuation structures permitted to borrow at all. Super funds are generally prohibited from borrowing to invest; the LRBA, introduced in 2007 and expanded in 2010, has been the significant exception. It lets a fund borrow to acquire a single asset — most commonly property — held in a separate trust until the loan is repaid, with the lender's recourse limited to that one asset if the loan defaults.
The agreed amendment closes that door for new residential purchases only. Treasurer Jim Chalmers described the measure as one that would "strengthen the rules that limit borrowing by superannuation funds," confirming the Government would "ban these arrangements for residential property going forward, but … leave the existing arrangements in place for those existing investments, and also have a 45-day transition period for any investments which are currently midstream" (Chalmers, 2026).
Three timing points follow from that:
The ban commences 45 days after royal assent, not on the day of the announcement. The budget tax package is expected to pass the Senate before Parliament rises, with royal assent typically following within days — placing the likely commencement around mid-August 2026.
The protection test is the contract date, not loan approval or settlement. Arrangements where a contract to purchase was signed before commencement are protected, and the 45-day transition window exists to let deals already in progress reach completion.
The change is prospective. An SMSF that already holds a residential property under an LRBA is unaffected — the Government has been explicit that existing arrangements will not be unwound.
Who is affected — and who is not
The practical effect divides SMSF trustees into clear groups.
Situation | Effect of the ban |
Existing residential LRBA already in place | Grandfathered — no change; not unwound |
Contract signed before commencement | Protected — treated as an existing arrangement |
Midstream purchase at commencement | 45-day transition window to complete |
Planning a new residential LRBA, no contract yet | Will not be permitted once the ban commences |
Commercial property via LRBA | Unaffected — borrowing for business real property remains available |
Buying residential property outright (no borrowing) | Unaffected — a fund with the cash can still purchase |
The most important line in that table for most trustees is the first: nothing changes for a fund that already holds geared residential property. The second matters most for anyone partway through a purchase, where the determining factor is whether a contract is signed before the law commences.
Why the change is happening
The LRBA has been under official scrutiny for more than a decade. The 2014 Murray Financial System Inquiry, commissioned by the then-Coalition government, recommended reinstating the prohibition on direct borrowing by superannuation funds — the only one of its 31 recommendations the government of the day rejected (Murray Financial System Inquiry, 2014). The Council of Financial Regulators returned to the same concern in both 2019 and 2022 (Council of Financial Regulators, 2022).
The immediate trigger was political. The Greens, holding the balance of power in the Senate, made closing the arrangement a condition of supporting the Government's capital gains tax and negative gearing changes, pointing to a surge of social-media advertising encouraging Australians to "turn your super into a property portfolio" in the wake of the budget. Greens leader Larissa Waters framed the outcome as preventing "wealthy property investors from exploiting a loophole," while the Government cited consumer protection and financial stability — Chalmers noting that "multiple inquiries have raised concerns that these arrangements raise risks for superannuation investors" (Chalmers, 2026). Shadow Treasurer Tim Wilson was critical of the reversal, describing the budget as being "in complete disarray" (Wilson, 2026).
Industry bodies have questioned whether the structure was the right target. Peter Burgess, chief executive of the SMSF Association, argued that "review after review has found LRBAs pose no material risk to the superannuation system," and that conduct by property promoters, rather than the borrowing arrangement itself, was the issue worth addressing (Burgess, SMSF Association, 2026).
Will it move the property market?
On the Government's own figures, the direct market effect is modest. Chalmers told reporters that SMSFs account for "less than 1% of total residential property borrowing, and less than half a per cent of new residential borrowing each year" (Chalmers, 2026). On those numbers, the ban is unlikely to materially shift national house prices, though it may cool demand in specific segments that have historically attracted SMSF buyers. The Government estimates the change will improve the budget by about $50 million over the forward estimates (Treasury, 2026) — a small fraction of the broader tax package it helped pass.
The insurance question for SMSFs that hold geared property
The ban affects new borrowing. It does not change the obligations that already sit with trustees of funds that hold a geared residential property — and one of those obligations is squarely in the territory Arrow Equities reviews every week.
Christopher Hall, AdvDipFP, Authorised Representative, AFSL 526688, has completed more than 500 life insurance policy reviews across Australian families. A recurring gap Christopher Hall sees in geared SMSFs is liquidity on the death or disablement of a member. Where a fund holds a single illiquid asset — a property — against an outstanding loan, the loss of a member can force the fund to sell that asset at a time it would not have chosen, simply to meet the loan and pay out a death benefit. Life and total and permanent disability (TPD) cover held inside the fund is the mechanism that funds the loan repayment or member buyout instead, so the property does not have to be sold under pressure. Arrow Equities has covered this directly in its article on the forced-sale risk when an SMSF member dies.
That obligation becomes more pointed under the new rules, not less. Because a grandfathered residential LRBA cannot be replaced once it is gone — a fund that sells out of an arrangement cannot enter a new one — the cover that keeps an existing arrangement intact through a member event carries more weight than it did before the ban. Reviewing whether the fund's insurance is adequate, correctly owned, and documented is part of the ATO expectations for SMSF insurance, and sits alongside the broader question of SMSF trustee insurance requirements. The following is general information only — how it applies to any fund depends on its trust deed, member structure, and existing cover, and a qualified professional can confirm what applies to a specific situation.
What has not changed
For all the attention the announcement attracted, most of the SMSF framework is untouched. Investment earnings inside the fund continue to be taxed at the concessional rate of 15% inside the fund during accumulation phase, and earnings supporting a retirement-phase pension remain tax-free (ATO, 2026). Borrowing through an LRBA to acquire commercial property — including business real property an SMSF leases back to a member's business at market rent — remains available under existing rules. Holdings of shares, exchange-traded funds, and managed funds are unaffected, and a fund with sufficient cash can still purchase residential property outright.
The broader tax package that the ban helped pass is a separate matter. It abolishes the 50% capital gains tax discount for new investment property held outside super, replacing it with an inflation-adjusted model, and tightens negative gearing for future purchases outside super — with superannuation deliberately excluded from those CGT changes. How any of this interacts with an individual's circumstances is a question for a qualified financial adviser or accountant, not a matter to be assumed from a general explainer. For SMSF trustees weighing how the change affects their broader cover, a review of life and TPD premiums against the market is one practical starting point, and how that cover is structured — superannuation vs personal payment for insurance premiums — is part of the same conversation with an AFSL-licensed life risk insurance adviser.
Frequently Asked Questions
Does the SMSF property borrowing ban affect my existing loan?
No. The ban is prospective only. The Government has confirmed that existing LRBAs will be left in place and will not be unwound. A fund that already holds a residential property under an LRBA is unaffected; the new rules apply only to arrangements entered into after the commencement date (Chalmers, 2026).
I have signed a contract but not yet settled — am I protected?
Based on the Government's stated position, the protection test is the contract date, not settlement or loan approval. Arrangements where a contract was signed before commencement are treated as existing arrangements, and the 45-day transition window after royal assent is intended to let deals already in progress complete. The exact qualifying conditions depend on the final legislation, which had not been published in final form at the time of writing.
Can an SMSF still borrow to buy commercial property?
Yes. The ban applies to residential property only. Borrowing through an LRBA to acquire commercial or business real property remains available under existing rules. Lender policies for commercial SMSF borrowing can change independently of legislation, and current policies should be confirmed directly with the lender.
Can an SMSF still buy residential property after the ban?
Yes — but only outright, using the fund's own cash, not with borrowed money. The ban removes the ability to use an LRBA to finance a residential purchase; it does not prohibit a fund with sufficient liquidity from buying a property without borrowing.
Why is the Government banning SMSF residential property borrowing?
The Government cites long-standing concerns about leverage inside superannuation, pointing to the 2014 Murray Financial System Inquiry and to the consumer-protection rationale. The immediate driver was political — the change secured the Greens' Senate support for the Government's broader capital gains tax and negative gearing package (Chalmers, 2026; Murray Financial System Inquiry, 2014).
What should an SMSF trustee with a geared property do now?
For an existing arrangement, nothing is required by the ban itself — but a member event can still force a sale of the property if the fund lacks the liquidity to repay the loan and pay a benefit. Trustees in this position may wish to speak with a qualified life insurance adviser about whether the cover inside the fund is adequate and correctly structured for their individual circumstances.
Book a quick review with an adviser
Book a quick review with an adviser now. The review looks at whether the life, TPD, and income protection cover inside an SMSF or held personally is adequate, correctly owned, and priced against the current market — the cover that keeps a geared arrangement intact through a member event.
About the Author
Christopher Hall, AdvDipFP, is the principal financial adviser at Arrow Equities and an Authorised Representative under AFSL 526688. He has completed more than 500 life insurance policy reviews for Australian families, with a specialisation in life risk insurance.
References
Australian Taxation Office (2026) Self-managed super fund quarterly statistical report — March 2026. Canberra: ATO. (672,805 SMSFs; 1,239,977 members; $1.06 trillion total assets.)
Jim Chalmers, Treasurer (2026) Remarks on superannuation borrowing and the Government–Greens agreement, 23 June. Canberra: Australian Government.
Murray, D. (2014) Financial System Inquiry: Final Report, November. Canberra: Commonwealth of Australia. (Recommended removing the section 67A SIS Act exception permitting direct borrowing — the only one of the Inquiry's 44 recommendations the government did not accept.)
Council of Financial Regulators (2022) Reviews of limited recourse borrowing arrangements in superannuation (2019 and 2022). Sydney: Council of Financial Regulators.
Larissa Waters, Australian Greens (2026) Statement on the SMSF residential property borrowing amendment, 23 June.
Tim Wilson, Shadow Treasurer (2026) Response to the budget tax package amendments, 23 June.
Peter Burgess, Chief Executive Officer, SMSF Association (2026) Statement on the limited recourse borrowing arrangement ban. Adelaide: SMSF Association.
Treasury (2026) Treasury Laws Amendment (Tax Reform No. 1) Bill 2026 — budget impact of limiting superannuation borrowing for residential property. Canberra: Australian Government.
Australian Taxation Office (2026) Superannuation: tax on earnings in accumulation and retirement phase. Canberra: ATO.
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