SMSF Residential Borrowing Banned: What the June 2026 Law Change Means for Trustees
The Federal Government announced on June 23, 2026 that self-managed super funds can no longer establish new limited recourse borrowing arrangements (LRBAs) for residential property. The ban takes effect approximately mid-August 2026. Existing arrangements are fully protected. Here is everything trustees need to know.
Action Required: Mid-August 2026 Deadline
If you intend to purchase residential property inside your SMSF using borrowing, you must exchange contracts before the commencement date (estimated August 12 to 16, 2026). Pre-approvals and letters of offer are not sufficient. Speak with your broker and solicitor immediately.
Are new SMSF residential property loans banned in Australia?
Yes. From approximately mid-August 2026, SMSFs cannot enter new limited recourse borrowing arrangements (LRBAs) to purchase residential property. The ban was announced June 23 2026 as part of a Labor-Greens deal. Existing LRBAs are fully grandfathered. Commercial property LRBAs are unaffected.
Key Takeaways
- 1New SMSF residential LRBAs are banned from approximately mid-August 2026, not immediately.
- 2All existing residential LRBAs entered before commencement are fully grandfathered, including refinancing.
- 3Exchange contracts signed before commencement are protected even if settlement occurs after the ban date.
- 4SMSF commercial property borrowing (LRBAs for business real property) is completely unaffected.
- 5Non-bank lenders who offer SMSF residential loans may withdraw products before the legal deadline.
- 6The ban was a Greens concession in the same bill that overhauled CGT and negative gearing rules.
What Happened on June 23, 2026
Prime Minister Anthony Albanese and Treasurer Jim Chalmers announced on June 23, 2026 that the Government would accept a Greens amendment banning SMSFs from entering new LRBAs for residential property. The amendment was the price the Greens extracted for their Senate support of the Treasury Laws Amendment (Tax Reform No. 1) Bill 2026.
That bill is significant beyond the SMSF borrowing question: it also overhauls the capital gains tax (CGT) discount for investment properties and reforms the negative gearing rules. The SMSF LRBA ban was tacked on at the Greens' insistence as the final piece of a broader housing supply agenda.
The bill has now passed both houses of Parliament. Royal Assent from the Governor-General is expected in early July 2026. Under the legislation, the ban commences 45 days after Royal Assent, placing the effective date at approximately August 12 to 16, 2026.
"This is a very small part of the housing market. SMSFs are less than 1% of total residential property borrowing, and less than half a per cent of new residential borrowing each year." - Treasurer Jim Chalmers, June 23, 2026
Exactly What Is and Is Not Affected
Banned from mid-August 2026
Any new limited recourse borrowing arrangement entered into by an SMSF for the purpose of acquiring residential property. This includes houses, townhouses, apartments, and vacant land zoned for residential use.
Fully protected (grandfathered)
All residential LRBAs entered into before the commencement date. This includes the ability to refinance those loans with another lender. Existing trustees are not required to unwind or sell their properties. The Government has been explicit that retrospective unwinding is not intended.
Still fully permitted after the ban
- New LRBAs for commercial property (offices, warehouses, retail, medical premises)
- SMSFs purchasing residential property outright with cash (no borrowing)
- SMSF investment in shares, ETFs, bonds, managed funds
- SMSF investment in business real property used by a related party
The Timeline: When Does the Ban Take Effect?
June 23, 2026
Announcement and bill passage
Labor-Greens deal announced. Bill passed both houses. SMSF residential LRBA ban confirmed.
Early July 2026 (estimated July 1)
Royal Assent
Governor-General grants Royal Assent to the Treasury Laws Amendment (Tax Reform No. 1) Bill 2026. The 45-day transition window begins.
Mid-August 2026 (estimated August 12-16)
Ban commences
No new SMSF residential LRBAs can be entered into from this date. Exchange contracts signed before this date remain protected even if settlement occurs after.
Understanding the Grandfathering Rules in Detail
The Government's grandfathering provisions are broadly written. The key protection tests are:
Existing residential LRBA
Any LRBA entered into before the commencement date is grandfathered in full. You do not need to take any action. The loan continues under existing terms.
Refinancing an existing LRBA
You can refinance an existing grandfathered residential LRBA with a different lender without triggering the ban, provided the refinancing arrangement maintains or reduces the pre-commencement borrowing. This is critical because lenders may change pricing or withdraw products.
Exchange contracts before commencement
If your SMSF has signed a contract of sale (exchanged contracts) for residential property before the commencement date, you are protected even if settlement occurs weeks or months after the ban. The protection attaches to the date of contract exchange, not settlement.
What does NOT count as protection
A pre-approval letter, a letter of offer from a lender, or a heads-of-agreement does not constitute an "acquisition arrangement" for the purposes of the grandfathering provisions. You need legally binding contracts exchanged before the cut-off.
What to Do Right Now If You Are In-Progress
For SMSF trustees currently in the middle of a residential property acquisition, the practical priority list is short but urgent.
Call your broker today
Confirm whether your SMSF lender is still actively processing applications. Non-bank lenders may pause or withdraw SMSF residential products before the legal deadline, just as the major banks did when a similar ban was floated in 2019.
Exchange contracts before mid-August
Work with your solicitor and vendor's agent to bring the exchange date forward. This is the single most important step. Once contracts are exchanged before the commencement date, you are protected regardless of settlement timing.
Ensure your SMSF trustee structure is in order
Your lender will need confirmation that the bare trust and trustee structure are properly established. Last-minute structural issues are the most common cause of SMSF settlement delays.
Speak with your SMSF auditor and accountant
The legislation does not change the existing rules for LRBAs (sole purpose test, arm's length borrowing, bare trust requirements). But your advisors should review the full documentation before commencement to ensure your arrangement is watertight for the long term.
Impact on Lenders: Expect Product Withdrawals Before the Deadline
The major banks (CBA, NAB, ANZ, Westpac) withdrew from SMSF residential lending years ago, following an earlier Murray Financial System Inquiry recommendation in 2014. The SMSF residential market has since been almost entirely served by non-bank lenders.
When Bill Shorten proposed a similar SMSF residential lending ban in 2019, all four major banks withdrew their products before any legislation passed. Industry bodies including the Australian Finance Industry Association (AFIA) have warned the same dynamic is likely to repeat. Non-bank lenders who currently offer SMSF residential loans are expected to stop accepting new applications well before the August commencement date.
The practical risk is not the legal deadline: it is the lenders. Do not assume you have until August 12 to lodge an application. Lenders set their own cut-off dates for accepting new SMSF residential files, and those dates will arrive earlier. Act now.
What SMSF Trustees Can Still Do: Alternatives After the Ban
The ban removes one avenue for SMSF property exposure, not all of them. Trustees have several meaningful alternatives.
Borrowing to purchase commercial property inside an SMSF is entirely unaffected by this legislation. Business real property, professional offices, medical suites, warehouses, and retail premises remain available. Many SMSF advisers expect a meaningful shift in trustee interest toward commercial property as a direct result of the residential ban.
The ban covers only LRBAs, meaning borrowing to buy. An SMSF with sufficient cash or liquid assets can still purchase residential property outright without any borrowing. This was always a minority of SMSF property purchases given the capital required, but it remains a valid option.
SMSFs can invest in A-REITs and unlisted property trusts with residential exposure without directly holding property. This provides liquidity, diversification, and no borrowing restriction, though with different risk and tax characteristics than direct property.
For members not yet in retirement phase, purchasing investment property in their personal name (or through a trust) remains available, subject to the new CGT discount and negative gearing rules which apply separately. A mortgage broker can model the after-tax comparison across structures.
The Broader Tax Reform Context
It is important to understand the SMSF LRBA ban did not arrive in isolation. The Treasury Laws Amendment (Tax Reform No. 1) Bill 2026 is a broader piece of legislation that simultaneously:
- +Reduces the CGT discount on residential investment property (phased from 50% toward 25% for properties held by individuals and trusts)
- +Changes the negative gearing rules for new property purchases, limiting deductibility against unrelated income
- +Bans new SMSF residential LRBAs (the subject of this article)
- +Leaves commercial property, existing residential property, and all SMSF structures otherwise intact
Trustees and investors need to consider all three changes together when reviewing their strategy. The interaction between the CGT discount reduction and the SMSF ban may affect the relative attractiveness of holding property inside versus outside superannuation over the long term. Speak with a licensed financial adviser for personalised guidance.
Frequently Asked Questions
Raj Bhangu
Principal Mortgage Broker, iSmart Finance Group
Raj Bhangu is the principal broker at iSmart Finance Group, specialising in SMSF lending, investment property finance, and complex lending structures. He holds a Certificate IV in Finance and Mortgage Broking and has been active in the SMSF lending space since 2015.
Sources & References
This article references information from the following authoritative sources:
- Government agrees to ban future LRBAs for resiThe Adviser
- Labor to ban SMSF property lendingMortgage Professional Australia
- SMSF Borrowing Banned: What the Labor-Greens LRBA Deal Means for YouGrow SMSF
- More details of LRBA ban but criticism keeps comingSMSF Adviser
- SMSF residential lending ban will hurt retirement savings of working AustraliansAFIA (Australian Finance Industry Association)
- Government bans SMSF loans for residential propertyYour Investment Property
- Australia's biggest non-banks address SMSF lending banMortgage Professional Australia
- Treasury Laws Amendment (Tax Reform No. 1) Bill 2026Parliament of Australia
This article is general information only and does not constitute financial, legal, or tax advice. The legislation is not yet in final form pending Royal Assent. Speak with a licensed financial adviser and your SMSF auditor before making any decisions about your superannuation fund structure. iSmart Finance Group is a licensed mortgage broker and does not provide SMSF financial advice.