New legislation ends SMSF borrowing for residential property

New legislation ends SMSF borrowing for residential property

Legislation banning self-managed superannuation funds (SMSFs) from borrowing to buy residential property has now passed both Houses of Parliament. Royal Assent is considered a formality at this point, and once it's granted, a 45-day countdown begins before the changes take effect – expected to be around 10 August 2026.

Here's what's actually changing: once the new rules start, an SMSF will only be able to borrow to buy real property if that property qualifies as business real property. Broadly, this means premises used exclusively in a business, like a commercial or industrial site.

Standard residential property will no longer be able to be financed through an SMSF loan. Trustees can still buy residential property using the fund's own cash, but borrowing to do it will no longer be an option once the rules apply.

The key date for trustees is the contract date, not settlement. Any residential property contract signed before the changes start is expected to be grandfathered under current rules, meaning the property and its existing finance arrangement remain unaffected even if settlement happens later. That gives trustees who are already progressing a purchase a window, provided the SMSF, bare trust and finance approval are in place in time to exchange before commencement.

For those yet to establish an SMSF, that setup process typically takes a couple of weeks, which makes the timeline tight.

Commercial property is different. Borrowing through a limited recourse borrowing arrangement (LRBA) will remain available where the asset qualifies as business real property. However, not every non-residential property will automatically qualify – mixed-use property, vacant land or anything with a residential element may need closer review before an LRBA is entered into.

For trustees mid-way through planning a purchase, or business owners considering buying their premises through their fund, the practical question now is timing and getting the structure right before the window narrows further.

An experienced SMSF finance broker can help assess whether your purchase can realistically reach contract stage in time, and where it can't, what the options look like under the new rules.

How 3LANE Finance can help

3LANE Finance works across a broad panel of lenders offering SMSF loans for both residential property and commercial property, and we regularly structure lending for trustees, business owners and self-employed clients with more complex positions. With the ban approaching, we can help you confirm whether your SMSF, bare trust and finance can realistically be in place before the cut-off, and where that timeline isn't achievable, what the business real property test means for their next move.

Considering an SMSF purchase before the rules change, or want to understand how the business real property test affects your plans? A strategic finance review with 3LANE Finance covers your borrowing capacity, lender appetite for SMSF lending and the practical timeline for getting your structure in place before commencement. Book today at enquiries@3lane.com.au or 0402 110 025.

FAQs

Can my SMSF still borrow money to buy a house?

Not for much longer. Legislation banning new SMSF borrowing for residential property has passed Parliament and is expected to commence around 10 August 2026, once Royal Assent is formalised.

When does the SMSF residential property loan ban start?

The change is expected to take effect 45 days after Royal Assent, which is considered a formality at this stage, pointing to a commencement date around 10 August 2026.

Can an SMSF still buy commercial property after the changes?

Yes. Borrowing through an SMSF will still be available for property that qualifies as business real property, such as premises used wholly and exclusively in a business. Mixed-use property or vacant land may not automatically qualify and should be reviewed carefully.

Will my existing SMSF home loan be cancelled after the LRBA ban comes into place?

No. Existing SMSF borrowing arrangements for residential property will be grandfathered and continue under current terms, though refinancing options may narrow as fewer lenders remain active in this space.