The SMSF borrowing ban is not quite the residential ban you read about

Published 10 August 2026 · Property Tax Compass

On 10 August 2026 a new condition switched on inside Australia's superannuation law, and I know this because I spent the weekend before it commenced reading the amendment act. Other people's hobbies involve fresh air. The headlines call it a ban on self managed super funds borrowing to buy residential property. The operative test in the Act is not the word residential. It says a new borrowing arrangement over real property is only permitted where the property is business real property, and that one term does more work than the entire headline.

What actually changed on 10 August 2026

The Treasury Laws Amendment (Tax Reform No. 1) Act 2026 received Royal Assent on 26 June 2026, and its SMSF borrowing measure commences on 10 August 2026. The amendment adds a condition to section 67A(2) of the SIS Act, the provision that permits limited recourse borrowing arrangements, or LRBAs, the structure a self managed super fund must use if it wants to borrow to buy an asset. From 10 August 2026, a new LRBA over real property is only permitted where the asset is business real property.

Three things the measure does not touch, before anyone panics and sells the farm, a phrase that is about to become oddly literal. Existing LRBAs are unaffected and can still be refinanced. A contract exchanged before 10 August 2026 keeps the old rules, and settlement can happen after that date. And a fund buying property outright, without borrowing, is untouched by this measure entirely.

The test is use, not the photos on the listing

Business real property is defined in section 66(5) of the SIS Act: real property used wholly and exclusively in one or more businesses. The ATO's interpretive authority on those words is SMSFR 2009/1. The point that matters is that the definition turns on how the property is actually used, not on what it looks like or what a headline assumes about it. Wholly and exclusively is exactly as strict as it sounds, which is why calling this measure a residential ban is a tidy summary and a mediocre description. The test cuts both ways.

Residential that can still be financed: the farm homestead

Section 66(6) carries a specific rule for primary production. Land used in a primary production business still qualifies as business real property with a dwelling on it, provided the dwelling sits on no more than 2 hectares and primary production remains the predominant use of the land. In plain terms, the farm homestead. A house, with a garden and a clothesline, that a family lives in, can sit behind a new SMSF loan entered after 10 August 2026, within the borrowing rules, because the land it stands on is a working farm. The most residential looking purchase imaginable still passes.

Commercial that is now caught

Meanwhile, property with a commercial address can fail. The test asks whether the property is used wholly and exclusively in one or more businesses, so:

• Vacant commercial premises. Premises not being used in a business are not being used wholly and exclusively in one, however commercial the zoning and however optimistic the agent. A new LRBA over them is off the table.
• The shop with the rented flat above. Where the residential use is more than incidental to the business use, the property is not used wholly and exclusively in a business, and it cannot support a new LRBA either. Plenty of strip shopping in this country comes with a flat upstairs, so this catch is not a curiosity.

Four questions, answered from the Act

Can an SMSF still borrow to buy commercial property? Yes, where the property is business real property under section 66(5): used wholly and exclusively in one or more businesses. Commercial premises that fail that use test, like the vacant premises or the shop with the flat, cannot support a new LRBA from 10 August 2026.

Can an SMSF still buy residential property at all? Yes, two ways. Outright, without borrowing, which this measure does not touch. Or with a new LRBA where the property qualifies as business real property, which residential property can, the clearest case being a dwelling on primary production land under the section 66(6) rule.

Is an existing SMSF loan affected? No. Existing LRBAs are unaffected and can still be refinanced.

What if contracts were exchanged before 10 August 2026? The old rules keep applying. Settlement can happen after that date.

The short version

The measure that commenced on 10 August 2026 is not a residential ban with a commercial carve-out. It is a single test, business real property: real property used wholly and exclusively in one or more businesses. Some residential passes it, the farm homestead being the standing example. Some commercial fails it, the vacant premises and the shop with the flat being the traps. If your fund is weighing a purchase with borrowed money, the question is not what the property looks like, it is how the property is used, and that question belongs in front of a licensed adviser, not a headline.

I am a transport manager who spent a perfectly good winter weekend cross-referencing section 66(5) against a tax ruling from 2009, and I regret nothing. My accountant says that is not normal behaviour. My accountant is correct, which is precisely why you should have one of your own.