SMSF borrowing for residential property: what the ban means now it is law

On 23 June 2026, the government agreed to a Greens amendment stopping self-managed super funds (SMSFs) from taking out new loans to buy residential property. It was the trade for Greens support of the Treasury Laws Amendment (Tax Reform No. 1) Bill 2026... the same Bill changing negative gearing and the CGT discount, which I covered in the 2026 budget post. That Bill has now passed, and the ban is law.

01What is actually changing

SMSFs have been able to borrow to buy property since 2007, through a structure called a limited recourse borrowing arrangement, or LRBA (the current rules took shape in 2010). In an LRBA, the fund borrows to buy a single asset that is held in a separate trust until the loan is repaid. If things go wrong, the lender can claim only that one asset, not the rest of the fund.

The new law closes that door for residential property. From 10 August 2026, an SMSF can no longer enter a new LRBA to buy a home or unit. It does not unwind anything already in place, and it does not touch commercial property.

02What is not changing

• ●Existing SMSF property loans. If your fund already holds a property under an LRBA, this does not change it. Existing arrangements are grandfathered, and refinancing of pre-commencement borrowings is permitted... which is worth knowing if your lender has stepped back from SMSF lending. I have set out how that works on my SMSF loan refinance page.
• ●Contracts entered before 10 August 2026. Under the transitional rules, a purchase contract entered before commencement is protected even where settlement happens after that date.
• ●Commercial property borrowing. The change applies to residential property only. Borrowing to buy business premises is not affected.
• ●SMSFs themselves. SMSFs are not being banned or wound back. This is about one thing: new borrowing to buy residential property inside the fund.

03Why the government says it is doing this

The reason given is protecting retirement savings. Borrowing to invest inside super magnifies both the gains and the losses, and several reviews have flagged the risk. The 2014 Murray Financial System Inquiry went further and recommended removing the borrowing exception altogether. The government of the day did not adopt that recommendation... this amendment revisits it, for residential property only.

The government also points out that SMSF borrowing is a small part of the market... less than 1% of all residential property borrowing, and under half a per cent of new borrowing each year. The measure is expected to improve the budget by around $50 million over the forward estimates. It is framed as a risk measure, not a housing-affordability one.

What it means if you were looking at an SMSF purchase

If you were part-way through setting up an SMSF purchase, the contract date is the line. Under the transitional rules, acquisitions entered into before commencement on 10 August 2026 are grandfathered, even where settlement happens after that date. If a contract is not yet signed, the door closes on 10 August 2026. That deadline is real, but it is still not a reason to act on a headline... talk to your SMSF specialist and accountant about your specific arrangement. I am not going to tell you to rush a decision about your super... that is the opposite of how this should be approached.

If your plans were outside super all along, none of this affects you. And if commercial property is on your radar, that pathway is unchanged.

Sources

• ●Prime Minister of Australia... Government another step closer to delivering tax reforms (23 June 2026) ... primary source: confirms the residential LRBA ban, that existing arrangements are unaffected, the Murray Inquiry rationale, and the under-1% / under-0.5% figures.
• ●Parliament of Australia... Treasury Laws Amendment (Tax Reform No. 1) Bill 2026 homepage ... passage through both houses on 25 June 2026 and royal assent on 26 June 2026.
• ●Parliament of Australia... Bills Digest ... commencement 45 days after assent, and the transitional treatment of pre-commencement arrangements, contracts and refinancing.
• ●The Adviser... Government agrees to ban future LRBA for resi ... reported the 45-day commencement and ~$50m budget impact at announcement.
• ●Accountants Daily... Labor strikes deal with Greens to enable passage of tax changes ... the deal and prospective application.
• ●Note: this article was first published on 24 June 2026, when the ban was an announced amendment, and updated on 6 July 2026 to reflect the passage of the legislation. The Bill received royal assent on 26 June 2026 and the ban commences on 10 August 2026.