SMSF property loans: the rules the fund must follow and the lender will check.

The arrangement, in one paragraph

Superannuation law prohibits a fund from borrowing except in narrow cases. The exception that allows property purchase is the limited recourse borrowing arrangement in sections 67A and 67B of the Superannuation Industry (Supervision) Act. The fund borrows to acquire a single asset, the asset is held on trust for the fund by a separate holding trustee until the loan is repaid, and the lender’s recourse if the loan fails is limited to that asset. The fund must provide any amount not covered by permitted, approved borrowing and retain capacity to meet repayments and expenses.

What changed on 10 August 2026

Schedule 5 of the Treasury Laws Amendment (Tax Reform No. 1) Act 2026 commenced on 10 August 2026. From that date a limited recourse borrowing arrangement can be used to acquire real property only where the property is business real property, which section 66 of the Superannuation Industry (Supervision) Act defines as property used wholly and exclusively in one or more businesses. Actual use decides that, not zoning and not how a listing describes it.

Three things are not caught by the change: an arrangement entered before 10 August 2026; a refinance of one; and a binding contract to acquire real property exchanged before that date, even if it settles or the arrangement is entered afterwards.

A fund can still own residential property outright. For property LRBAs subject to the new rules, the asset must qualify as business real property when the arrangement begins and throughout its life. The residential label alone does not decide this; transitional exceptions also apply. Whether a particular arrangement falls inside the transitional treatment is a question for the fund’s own advisers.

Current at 10 September 2026. Sources: the Act as made, and the ATO’s guidance on the change.

What the fund can and cannot do with the property

Because the arrangement must relate to a single acquirable asset, the fund cannot borrow to buy a house and then subdivide it. A property involving more than one title needs specific assessment: in some circumstances several titles form one acquirable asset, as the ATO’s ruling SMSFR 2012/1 sets out, and in others they do not, so the proposed property and title structure is checked before anything is signed. Borrowed money may fund repairs and maintenance, not improvements. Whether roof work is a repair depends on its scope. Any improvement must use other funds and must not create a different asset under the LRBA rules. A residential property cannot be bought from a member or a relative, and property the fund owns cannot be lived in or rented by them, at any price. Since 10 August 2026 a fund cannot borrow to acquire residential property at all. The exception is business real property, meaning premises used wholly and exclusively in a business, which a fund may buy from and lease to the members’ own business at market rent.

The trust deed must permit borrowing, the fund’s investment strategy must contemplate the purchase, and the trustees must be able to show the purchase suits the members’ retirement objectives. These are trustee obligations, checked by the fund’s auditor every year, and the lender asks for the documents that evidence them.

What the lender tests

Deposit and liquidity requirements depend on the property, fund and lender. The fund pays the balance of the price, duty and costs from its own money. After settlement the lender wants to see liquidity remaining in the fund, so the loan can be serviced through a vacancy or a repair without a member having to contribute in a hurry. Servicing is assessed on the rent, discounted, plus the members’ regular contributions, evidenced by payslips and contribution history, and sometimes other fund income.

Most lenders require the members to give personal guarantees, which sit outside the fund. The limited recourse protects the fund’s other assets from the lender; the guarantee means the members are still answerable if the property does not cover the debt. An LRBA requires a holding trust arrangement. Trustee structure, costs and lender requirements need to be checked for the proposed arrangement. Document and settlement requirements depend on the arrangement and lender.

Buying the business premises through the fund

Buying business premises through a fund requires advice about the fund’s circumstances and investment strategy. Where the arrangement meets the superannuation rules, the business pays rent to the fund under the lease. The fund also bears the property’s costs and risks. The lease must be at arm’s length, the rent must be paid on time and reviewed, and the business cannot fall behind because the landlord is friendly. The lender assesses the lease and the business, as it would for any owner-occupied commercial purchase, with the fund’s liquidity on top.

What we do and what we do not

We provide credit assistance to funds whose trustees have decided, with their own advisers, to buy property with borrowing. We do not advise on whether to establish a self-managed fund, whether to invest through super, or whether property is the right asset for the fund; those are financial product decisions that require a licensed financial adviser, and the tax questions belong to your accountant. Where a fund comes to us before those decisions are made, we say so and wait.