What Are the Borrowing Rules (LRBA) for SMSF Property Investment?
How SMSFs can borrow to buy property under a Limited Recourse Borrowing Arrangement (LRBA) — the rules, the structure, and a 2026 law change, explained.
Yes — but only through one specific legal structure. A self-managed super fund (SMSF) — a private super fund whose members run it themselves — is otherwise banned from borrowing money, full stop. The one carve-out that lets a fund gear into property at all is a Limited Recourse Borrowing Arrangement (LRBA): a structure set up under section 67A of the Superannuation Industry (Supervision) Act 1993 (SIS Act), where the trustee borrows to buy a single asset and the lender’s rights on default are limited to that one asset, not the rest of the fund.
That’s the whole framework in outline. What follows is how an LRBA is actually built, which other superannuation rules keep applying on top of it, and a legislative change — already enacted, not yet in force — that narrows what real property can go into a brand-new one from 10 August 2026. Superannuation rules are complex and penalties for breaches are significant — seek advice from a licensed financial adviser before making SMSF decisions.
Why can’t an SMSF just take out an ordinary loan?
Section 67 of the SIS Act prohibits an SMSF trustee from borrowing, or maintaining an existing borrowing, as a general rule. It’s a blanket restriction — not a cap, not a case-by-case test. Section 67A is the only exception written into the same Act, and it doesn’t waive the borrowing ban so much as replace it with a narrow, tightly defined alternative: the LRBA.
Because the exception is specific, an LRBA has to match its conditions exactly. Get the structure wrong — the wrong asset, the wrong trust arrangement, borrowed money spent on the wrong thing — and the arrangement can fall outside section 67A altogether, which puts the fund back under the general section 67 ban it was trying to use the exception to avoid.
How does an LRBA actually work?
Under an LRBA, the SMSF trustee doesn’t hold the property directly while the loan is outstanding. Section 67A(1) requires the asset to be held on a separate trust — commonly called a bare trust, custodian trust or holding trust — so that the SMSF trustee holds a beneficial interest in the property and a right to acquire legal ownership by making one or more payments (the loan repayments). A separate custodian trustee holds legal title in the meantime. That three-party shape — SMSF trustee, custodian trustee, lender — is the standard LRBA model.
The borrowed money itself is restricted to a narrow purpose: acquiring a single acquirable asset, plus the expenses of the borrowing, the acquisition, or maintaining or repairing that asset. It explicitly cannot fund improvements to the asset — repairs and maintenance are covered, upgrades are not. A borrowing can also refinance an existing qualifying LRBA loan, but only for the same asset; it can’t be redirected to something else.
The “acquirable asset” itself has its own conditions (SIS Act s67A(2)–(3)): it can’t be money, and it can’t be something the trustee is otherwise legally barred from acquiring. A collection of assets — for example, shares of one class in the one company — can be treated as a single acquirable asset, but only where every asset in the collection is identical and carries the same market value. That collection rule is built for things like parcels of identical listed shares; it doesn’t turn a group of different assets into one acquirable asset.
What does “limited recourse” actually limit?
This is the feature the name describes. If the loan defaults, the SIS Act limits the rights of the lender — and of any other party to the arrangement — to the acquirable asset itself. The rest of the fund’s assets sit outside the lender’s reach. The Act’s own worked example goes further: even a personal guarantee given as part of the arrangement is capped at the acquirable asset, so a guarantor’s exposure can’t extend into the fund’s other holdings either. The asset also has to be kept free of any other charge, beyond what the arrangement itself allows.
That protection is a structural feature of the LRBA, not a comment on how manageable the debt is for the fund day to day. A limited-recourse loan still has to be serviced from the fund’s income and cash flow like any other borrowing — it just contains where a default can land if repayments stop.
What other superannuation rules still apply on top of the LRBA rules?
Meeting section 67A’s borrowing mechanics is necessary, but it isn’t the whole compliance picture. Four other rule sets keep applying regardless of how correctly the LRBA itself is structured.
- The sole purpose test (s62). Every SMSF investment — an LRBA-funded property included — has to be made and maintained for the sole purpose of providing retirement benefits to members, or death benefits if a member dies first. A member or related party getting more than an incidental personal benefit from the property (living in it, for instance, where that isn’t otherwise permitted) can breach this test even where the borrowing itself was set up correctly — the two rules are assessed separately.
- In-house asset limits. An SMSF is restricted from holding in-house assets — broadly, loans to, investments in, or assets leased to a related party — above 5% of the fund’s total assets. Related parties reach beyond the fund’s members to their relatives, business partners and the companies or trusts they control. Whether any part of a given LRBA structure counts as an in-house asset for a particular fund depends on who the related parties are; it isn’t settled by the LRBA structure alone.
- The investment strategy requirement. Every SMSF needs a written investment strategy considering, among other things, the fund’s liquidity — how easily its assets convert to cash to pay expenses and member benefits. A geared, illiquid property sitting inside an LRBA is exactly the kind of holding that requirement is built to test.
- Valuation and audit. SMSF assets are reported at market value each year through a fair and reasonable process, and the fund is audited annually by an independent, ASIC-registered SMSF auditor. A geared property held through a custodian trust still has to be valued and disclosed on that same annual cycle, alongside the loan itself.
Inside the fund, tax runs on superannuation’s own settings, not on any special rate for geared assets. A complying SMSF pays a concessional 15% tax rate on its income, and receives a 33.33% capital gains tax discount on assets held at least 12 months once sold. Tax outcomes depend on your circumstances — speak with a registered tax agent before acting.
Is SMSF property borrowing changing in 2026?
Yes — a specific, narrow change, already law rather than a proposal. The Treasury Laws Amendment (Tax Reform No. 1) Act 2026 (Act No. 49 of 2026, royal assent 26 June 2026) — the same Act that carries the separate 1 July 2027 CGT and negative-gearing changes, under a different schedule — adds a new condition to section 67A(2). From the date it commences, an acquirable asset that is real property must be “business real property” within the meaning of section 66 of the SIS Act: broadly, land or buildings used wholly and exclusively in a business. An ordinary residential investment property does not meet that description.
This change is not yet in force. As at July 2026, Schedule 5 commences on 10 August 2026 — the 45th day after royal assent. Before that date, the current rules described above still apply in full to a new LRBA over residential property.
From 10 August 2026, a new LRBA can no longer be entered into to acquire an ordinary residential investment property; only business real property (or non-real-property assets, such as identical collections of listed shares) can go into a new arrangement. The amendment’s own transitional wording is explicit that it does not reach backwards: arrangements entered into before commencement, refinancing of those existing borrowings, and acquisitions happening under an arrangement entered into before commencement all continue to be covered by the section 67A exception. An existing residential-property LRBA is not unwound by this change.
It’s worth being precise about what this isn’t. It is not a general ban on SMSF borrowing or on the LRBA exception itself — LRBAs over business real property, and over non-real-property assets, are entirely unaffected. It’s also not the first time removing the exception altogether has been on the table: the 2014 Financial System Inquiry recommended scrapping LRBAs for super funds entirely, and the government’s 2015 published response rejected that recommendation outright, citing insufficient data to justify it. That history is separate from, and not superseded by, this narrower 2026 change. The accurate description of where things stand is that new SMSF borrowing to acquire ordinary residential investment property is being restricted to business real property from 10 August 2026; existing arrangements continue; SMSF LRBA borrowing itself is not being abolished. [REVIEW: to be reviewed by a registered tax agent — arranged by
LRBA borrowing rules at a glance
| Rule | What it means | Status (as at July 2026) |
|---|---|---|
| General borrowing ban | SMSFs can’t borrow money except through a qualifying LRBA | Current law (s67 SIS Act) |
| Acquirable asset | A single asset — or a collection of identical assets of equal value — not money, not something otherwise prohibited | Current law (s67A(2)–(3)) |
| Trust structure | Asset held on a bare/custodian trust; SMSF holds a beneficial interest and a right to acquire legal title by instalments | Current law (s67A(1)(b)–(c)) |
| Limited recourse | On default, the lender’s (and any other party’s) rights are limited to the acquirable asset | Current law (s67A(1)(d)–(e)) |
| Sole purpose test | Still applies on top of the LRBA rules — separate breach risk even where the borrowing is structured correctly | Current law (s62) |
| In-house asset cap | 5% of the fund’s total assets, subject to related-party tests | Current law |
| New real-property LRBAs | Must be business real property, not ordinary residential investment property | From 10 August 2026 — not yet in force |
| Existing LRBAs | Continue unaffected, including refinancing of them | Grandfathered, no end date |
Where does this leave an SMSF wanting exposure to residential property?
There’s no single answer, and this article isn’t the place to pick one for a particular fund — that depends on the fund’s strategy, its liquidity needs, and its members’ circumstances. What can be set out are the paths that exist, and the question each one raises.
An LRBA over business real property remains available and is unaffected by the 2026 change. Buying real property outright, without any borrowing, sidesteps section 67A’s conditions entirely, but ties up more of the fund’s capital in one illiquid holding — exactly the trade-off the investment strategy requirement’s liquidity factor is built to test. And a fund can also gain exposure to property through a different structure altogether that doesn’t involve fund borrowing at all: MyBrix’s current Product Disclosure Statement names self-managed super funds among the investor types it’s open to, alongside individuals, companies and trusts. We’ve written a dedicated guide to whether an SMSF can invest in fractional property, including where that eligibility does and doesn’t extend, for anyone weighing it as one option among several.
Whichever path a fund considers, the same rules from earlier in this article — the sole purpose test, the in-house asset limits, the investment strategy’s liquidity factor, and the fund’s own valuation and audit obligations — apply regardless of the structure chosen. So does the fund’s tax position; see our guide to capital gains tax on property for how the discount rules work more broadly, and our guide to what property investment involves in Australia for the fundamentals this article builds on. Superannuation rules are complex and penalties for breaches are significant — seek advice from a licensed financial adviser before making SMSF decisions.
