New residential borrowing through your self-managed super fund is no longer permitted. The Treasury Laws Amendment (Tax Reform No. 1) Act 2026 received Royal Assent on 26 June, and the provision prohibiting new limited recourse borrowing arrangements for residential property took effect approximately 10 August 2026.
If you were considering an apartment purchase in The Ponds or elsewhere using borrowed funds through your SMSF, that option closed as the new law commenced. Your fund can still acquire residential property, but only using cash already held within the fund. This changes the planning approach entirely.
What the Residential Borrowing Ban Actually Means
The ban prevents new limited recourse borrowing arrangements being used to acquire residential property. This includes apartments, houses, and any other dwelling regardless of whether the property is newly constructed or an existing residence. The legislative change inserted a new condition into the Superannuation Industry (Supervision) Act that restricts borrowing to business real property only.
For trustees who had been building their fund balance with the intention of using SMSF loans to amplify their purchasing power, this represents a shift in strategy. Consider a member couple in The Ponds who together hold $180,000 in super and had planned to use an LRBA to acquire an investment apartment nearby. They would previously have been able to borrow an additional amount to reach the purchase price. Under the current law, they can only acquire property to the value of their existing balance, minus costs such as stamp duty, legal fees, and ongoing holding costs until the property generates rental income.
Can You Still Buy Residential Property Through Your Fund?
You can purchase residential property using your fund's existing cash balance without borrowing. The property cannot be acquired from a related party, and it cannot be occupied by you or any member of your fund or a related party. These restrictions existed before the borrowing ban and remain unchanged.
The sole purpose test continues to apply. The fund must be maintained for the sole purpose of providing retirement benefits to members. Any residential property acquired must be held as an investment and leased to an unrelated tenant at market rent. Rental income is taxed at 15 percent within the fund during accumulation phase, or tax-free if the fund is in pension phase, provided the fund satisfies the pension conditions.
If you exchanged a contract to purchase residential property before approximately 10 August 2026, and that contract involved an LRBA, the arrangement is protected under grandfathering provisions. The date that matters is contract exchange, not settlement. No action is required for existing compliant arrangements.
How Business Real Property Remains an Option
Business real property is not affected by the residential ban. A limited recourse borrowing arrangement can still be used to acquire property that satisfies the definition of business real property under section 66 of the SIS Act. This means land and buildings used wholly and exclusively in one or more businesses.
An apartment can qualify as business real property if it is used wholly and exclusively in a business. For example, if a member operates a consultancy or professional services business from a commercial suite within a mixed-use building in The Ponds, and that suite is clearly separated from any residential component and used only for business purposes, it may satisfy the definition. Classification depends entirely on actual use at the time of acquisition.
Vacant land not currently used in a business does not qualify, nor does a property where the main use is domestic or private. Detailed guidance and examples are set out in Superannuation (Self Managed Superannuation Funds) Ruling SMSFR 2009/1. Before entering into any arrangement, a trustee should obtain advice from a licensed SMSF specialist to confirm the property satisfies the legislative criteria.
What Happens to Existing Residential Borrowing Arrangements
Existing LRBAs over residential property entered into before the commencement date continue to operate. Trustees are not required to repay loans early or sell properties. The law specifically provides that maintaining or refinancing a borrowing under an arrangement entered into before the commencement date is permitted.
Refinancing an existing residential LRBA involves some complexity. As at early July, the ATO had not published updated guidance on the circumstances in which refinancing might be treated as a new LRBA under the post-commencement rules. The ATO's existing position, set out in various rulings and practical compliance guidelines, is that a significant change to the terms or conditions of an LRBA ends the arrangement and creates a new one. Changes such as altering the beneficiaries of the arrangement, borrowing to acquire a different asset, or refinancing in a way inconsistent with the original arrangement may trigger this outcome.
If you hold an existing residential LRBA and are considering refinancing to access a lower rate or adjust repayment terms, speak with someone who works across both commercial loans and superannuation law before proceeding. The interaction between the new legislation and existing ATO guidance is not yet fully clarified.
Using Cash to Acquire an Apartment Without Borrowing
Purchasing property outright using fund cash requires sufficient accumulated balance and liquidity planning. In our experience, trustees who proceed without borrowing tend to favour properties that generate immediate rental yield rather than longer-term capital growth plays, because the fund needs to meet ongoing expenses including rates, insurance, and any management fees.
The Ponds has a mix of apartments and townhouses that attract families and professionals working in the surrounding commercial precincts. Rental demand in the area has remained stable, supported by proximity to Rouse Hill Town Centre and access to the Metro Northwest line. A fund purchasing an apartment in the suburb should factor in body corporate fees, which vary depending on the age and amenities of the complex, and may affect net rental return.
Contributions caps apply when building your fund balance to support a purchase. From 1 July 2026, the concessional contributions cap is $32,500 per annum, and the non-concessional contributions cap is $130,000 per annum. The bring-forward arrangement allows eligible members to contribute up to $390,000 over three years, subject to total superannuation balance thresholds. This can accelerate the timeline for a cash acquisition, but only where the member has the available funds outside super and is within the relevant caps.
Division 296 Tax and Large Balance Considerations
From 1 July 2026, where a member's total superannuation balanceat the end of the financial year exceeds $3 million, Division 296 tax of 15 percent applies to the proportion of earnings attributable to the amount above that threshold. Where the balance exceeds $10 million, an additional 10 percent tax applies to the proportion of earnings above that higher threshold.
Outstanding LRBA amounts entered into on or after 1 July 2018 are included in a member's total superannuation balance in certain circumstances, including where the LRBA is with an associate of the fund or where the member has satisfied a condition of release with a nil cashing restriction. For members with large balances, the interaction between property holdings, borrowings, and the new tax may influence whether holding residential property within the fund remains appropriate.
This is a planning question rather than a transactional one. The structure that worked when borrowing was available may not produce the same after-tax outcome under the current rules, particularly for members approaching or exceeding the thresholds. Working with both a mortgage broker who understands superannuation and a qualified SMSF adviser ensures decisions are made with the full legislative and tax context in view.
Refinancing and Arm's Length Terms
For those holding existing residential or commercial loans within their fund, refinancing must maintain the limited recourse character of the original arrangement. The ATO publishes safe harbour interest rates under Practical Compliance Guideline PCG 2016/5. These rates are updated annually and apply to both real property and listed securities held under an LRBA.
Income from an arrangement that does not meet arm's length terms may be assessed as non-arm's length income and taxed at the highest marginal rate. Lender recourse in the event of default must remain limited to the asset being acquired, not to other fund assets. A related party may provide a personal guarantee, but their recourse must also be limited to the asset under the arrangement.
For commercial LRBAs, refinancing is not affected by the residential ban. Compliance conditions continue to apply, including that the refinanced loan must relate to the same single acquirable asset and maintain arm's length terms.
The information in this article was compiled on 2 July 2026. The ATO had not published updated guidance on all aspects of the new law as at that date. If you are a trustee of an SMSF considering property acquisition, holding an existing LRBA, or planning contributions to fund a future purchase, call one of our team or book an appointment at a time that works for you. We work with SMSF specialists and can connect the lending, legal, and superannuation components so you have clarity before making any commitment.
Frequently Asked Questions
Can I still borrow through my SMSF to buy an apartment in The Ponds?
No, new limited recourse borrowing arrangements for residential property have been prohibited since approximately 10 August 2026. Your fund can still purchase an apartment using existing cash within the fund, but borrowing to acquire residential property is no longer permitted.
What happens to my existing SMSF loan for a residential property?
Existing LRBAs entered into before the commencement date are grandfathered and continue to operate. You are not required to repay the loan early or sell the property. Maintaining or refinancing an existing arrangement is permitted, though you should seek advice before making changes to the terms.
Can I still use an SMSF loan to buy commercial property?
Yes, limited recourse borrowing arrangements for business real property are not affected by the 2026 residential ban. The property must be used wholly and exclusively in one or more businesses to satisfy the definition under the SIS Act.
How much can I contribute to my SMSF to buy property without borrowing?
From 1 July 2026, the concessional contributions cap is $32,500 per annum and the non-concessional cap is $130,000 per annum. Eligible members can use the bring-forward arrangement to contribute up to $390,000 over three years, subject to total superannuation balance thresholds.
Does Division 296 tax apply to property held in my SMSF?
Where your total superannuation balance exceeds $3 million at the end of the financial year, Division 296 tax of 15 percent applies to the proportion of earnings above that threshold. An additional 10 percent applies above $10 million. Outstanding LRBA amounts may be included in your balance in certain circumstances.
