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

Published 10 August 2026 · Last reviewed 17 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, Act No. 49 of 2026, received Royal Assent on 26 June 2026. Its SMSF borrowing measure sits in Schedule 5 of that Act and commenced on 10 August 2026, 45 days after assent and well ahead of the 1 July 2027 commencement that applies to the rest of the Act. Schedule 5 inserted section 67A(2)(c) into the SIS Act.

SMSF borrowing is generally prohibited by s67 of the SIS Act. Section 67A provides a specific exception for qualifying limited recourse borrowing arrangements. From 10 August 2026, where the asset is real property, s67A(2)(c) requires it to be business real property, so new LRBAs can no longer be used to acquire residential property. Existing residential LRBAs entered before that date are grandfathered, and refinancing an existing arrangement remains permissible. Section 66 separately restricts acquisitions from members and related parties.

Three things the measure does not touch. Existing LRBAs are unaffected and can still be refinanced. A binding contract exchanged before 10 August 2026 is grandfathered, even where finance and settlement occur 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 a strict test. That is why describing the measure simply as a residential ban is imprecise: 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 dwelling a family lives in can sit behind a new SMSF loan entered after 10 August 2026, not because residential property as such is permitted, but because the land it stands on satisfies the business real property test in section 66.

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, whatever the zoning. A new LRBA over them is not permitted.
• 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, in two ways. Outright, without borrowing, which this measure does not touch. Or with a new LRBA where the property independently qualifies as business real property, the clearest case being a dwelling on primary production land under the section 66(6) rule. A new LRBA cannot be used to acquire residential property as such.

Is an existing SMSF loan affected? No. Existing residential LRBAs entered before 10 August 2026 are grandfathered, and refinancing an existing arrangement remains permissible.

What if contracts were exchanged before 10 August 2026? A binding contract exchanged before that date is grandfathered, and the old rules keep applying, even where finance and settlement occur after it.

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.