Limited recourse borrowing arrangements changes
Limited recourse borrowing arrangements (LRBAs) entered into on or after 10 August 2026 to purchase real property, can only be used to acquire business real property.
There are no changes to:
- how LRBAs operate
- any other exceptions to the general prohibition on borrowing by self-managed super funds (SMSFs).
For further information, see Self-Managed Superannuation Funds Ruling SMSFR 2012/1 Self-Managed Superannuation Funds: limited recourse borrowing arrangements - application of key concepts.
LRBAs are not banned
Limited recourse borrowing arrangements (LRBAs) are not banned.
SMSFs can still borrow or maintain a borrowing under an LRBA to acquire an asset. However, the changes restrict real property assets to business real property.
The LRBA law changes apply to all lenders
The changes apply where the arrangement is an LRBA, regardless of whether the lender is a bank, non-bank lender or related party. The identity of the lender does not determine whether the real property must be business real property.
Business real property
Business real property generally means land and buildings used wholly and exclusively in a business.
Real property used in a primary production business and containing a dwelling for private or domestic purposes can still meet the requirements of being used wholly and exclusively in a business (and therefore be business real property) if:
- any dwelling used for private or domestic purposes is in an area of land no more than 2 hectares, and
- the main use of the whole property is not for domestic or private purposes.
For detailed information, examples and our view on business real property, see Self-Managed Superannuation Funds Ruling SMSFR 2009/1 Self-Managed Superannuation Funds: business real property for the purposes of the Superannuation Industry (Supervision) Act 1993.
Existing LRBAs for real property
The changes do not apply if an SMSF:
- has already entered into an LRBA to finance a real property acquisition before 10 August 2026
- maintains or refinances that LRBA on or after 10 August 2026.
This means that if the asset already financed under the LRBA is real property, it does not need to be business real property.
We consider refinancing an LRBA to mean entering into a new loan contract for the same asset, with the same or a new lender.
SMSFs acquiring real property under an LRBA before 10 August
The changes do not apply if an SMSF exchanges a binding contract to acquire real property before 10 August 2026. This applies even if the contract is settled or the LRBA is entered into on or after 10 August 2026.
This means that if the acquisition contract is for real property, it does not need to be business real property.
In general, later variations of the contract will not change this. However, if a contract is changed significantly and the fundamental terms no longer exist, it may be considered that a new arrangement has begun.
Example: acquiring real property before 10 August
An SMSF exchanges a binding off-the-plan contract to acquire real property that is not business real property before 10 August 2026. Finance is approved after 10 August 2026, and settlement occurs 12 months later.
The changes do not apply to this acquisition as the SMSF exchanges a binding contract before 10 August 2026. It does not matter that the contract is settled or the LRBA is entered into on or after 10 August 2026.
End of example
Real property assets must be business real property when entering an LRBA
From 10 August 2026, the real property asset must be business real property at the time the LRBA is entered into. That is, the asset must be wholly and exclusively used in one or more businesses at the time of the LRBA.
If the asset does not meet this rule, the SMSF has breached the law against borrowing and compliance action may apply.
For further information, see Self-Managed Superannuation Funds Ruling SMSFR 2009/1 Self-Managed Superannuation Funds: business real property for the purposes of the Superannuation Industry (Supervision) Act 1993.
Real property assets must remain business real property for the entire life of the LRBA
The real property asset must continue to be business real property for the entire life of the LRBA. This means the asset must be wholly and exclusively used in one or more businesses for the duration of the LRBA.
If the asset does not meet these rules, the SMSF has breached the law against borrowing and compliance action may apply.
If business real property financed under an LRBA stops being business real property
If a real property asset stops being business real property during the LRBA, then the SMSF fails to maintain the LRBA according to the rules. The SMSF has breached the law against borrowing and compliance action may apply.
If the property is land on which commercial premises are leased, the property will not stop being business real property only because the owner is looking for a new tenant. However, if the owner abandons plans to lease the property, the property will no longer be business real property.
For detailed information, examples and our view on business real property, see Self-Managed Superannuation Funds Ruling SMSFR 2009/1 Self-Managed Superannuation Funds: business real property for the purposes of the Superannuation Industry (Supervision) Act 1993.
Investing in residential real property under an LRBA
If the residential real property meets the definition of business real property, these can be acquired and financed under an LRBA. The residential real property will need to be business real property at the time the LRBA is entered into and throughout the life of the LRBA.
Alternatively, an SMSF can still invest in residential real property that is not business real property (provided it meets all other regulatory rules), but it can't be financed under an LRBA.
For more information, see What are the SMSF investment restrictions?