For many SMSF members, borrowing to purchase property has been an effective way to build wealth for retirement. However, recent changes to the law have significantly altered what types of property can be acquired through an SMSF borrowing arrangement.
If you're considering purchasing property through your SMSF, or already have an existing borrowing arrangement in place, here's what you need to know.
Can my SMSF still buy property using borrowed funds?
Yes, but the rules have changed.
The Treasury Laws Amendment (Tax Reform No. 1) Act 2026 received Royal Assent on 26 June 2026, with the new rules commencing on 10 August 2026. From that date, SMSFs entering into a new Limited Recourse Borrowing Arrangement (LRBA) to acquire real property generally require the property to qualify as Business Real Property (BRP). As a result, many residential investment properties can no longer be acquired using borrowed funds within an SMSF.
This means borrowing through your SMSF is no longer available for many traditional residential property investments that were previously eligible.
What is "Business Real Property"?
Business Real Property (BRP) is determined by how a property is used, not simply what type of property it is.
Generally, a property must be used wholly and exclusively in a business to qualify as BRP. The BRP rules can be highly technical and trustee reliance on property zoning alone is not sufficient.
Examples may include:
- Commercial offices
- Warehouses and industrial premises
- Retail premises
- Medical practices operating from business premises
- Other properties used entirely for business activities
The rules can be more complex than they appear. For example, some residential-style properties may qualify if they are used entirely for business purposes, while some commercial properties may not qualify if they have a residential component.
What happens to existing borrowing arrangements?
Existing arrangements have been protected.
If your SMSF already has an LRBA in place over a property that doesn't meet the new BRP requirements, the existing arrangement may continue and, in some circumstances, can be refinanced without losing grandfathered status. Specialist advice should be obtained before refinancing.
For many SMSF trustees, this means there is no immediate need to change existing property investments simply because of the new legislation.
Does the transitional period affect me?
Possibly.
The legislation includes a transitional period for arrangements entered into shortly after the law change. In some cases, property purchases that were already underway may still qualify, even if settlement occurs later. However, eligibility depends on the timing and structure of the arrangement.
If you were in the process of purchasing property through an SMSF when the rules changed, it's important to seek advice to understand how the transitional provisions apply to your circumstances.
What should SMSF trustees do now?
Property remains an important investment strategy for many SMSFs, particularly for business owners looking to hold business premises within their superannuation structure. However, the new borrowing restrictions mean careful planning is more important than ever.
Before entering into any new property borrowing arrangement, trustees should:
- Confirm whether the property meets the Business Real Property requirements.
- Review the impact of the new rules on their investment strategy.
- Understand the financing options available.
- Seek specialist legal, financial and SMSF advice before signing any contracts.
The new rules don't prevent SMSFs from investing in property, but they do change the types of property that can be acquired using borrowed funds. Understanding the distinction could help you avoid costly mistakes and ensure your retirement strategy stays on track.
If you're considering purchasing property through your SMSF or would like to review an existing borrowing arrangement, contact the Count Gold Coast Wealth Management team on 1300 667 897 to discuss your options, or click this link to book a complimentary consultation.
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