Providence Lending Group | SMSF & Investment Lending
6 min read
KEY POINTS
- New limited recourse borrowing arrangements (LRBAs) for residential property inside an SMSF are being prohibited. The legislation passed Parliament on 23 June 2026 and received Royal Assent on 26 June.
- Existing arrangements are fully grandfathered — no one is being forced to sell or refinance.
- Commercial property and business real property LRBAs are untouched, and remain available under existing SMSF rules.
- SMSFs can still own residential property outright — the restriction applies to new borrowing to acquire it, not to ownership.
- Lender availability can move faster than legislation: in 2019, major banks withdrew SMSF products before any law changed.
For more than fifteen years, the limited recourse borrowing arrangement has been a familiar tool for self-managed super fund trustees wanting exposure to residential property with the benefit of leverage. That chapter is closing: the new SMSF residential lending ban means trustees can no longer enter fresh borrowing arrangements to acquire residential property inside their fund. Following an agreement between the Government and the Australian Greens, legislation prohibiting new LRBAs for residential property passed both houses of Parliament on 23 June 2026 and received Royal Assent shortly after, with commencement following a short transition period. For the ATO’s full guidance on the changes, see: Changes to LRBAs.
The question for trustees was never really “can I still invest?” It’s “what’s the best structure now available to me?”
For trustees and their advisers, the immediate reaction has understandably been concern. But a closer read of what has actually changed reveals something more constructive: the reform is narrower than the headlines suggest, and several well-established pathways remain fully open. Understanding precisely what has been restricted — and what hasn’t — is the difference between reacting anxiously and planning well.
What the SMSF residential lending ban actually changes
The restriction is specific. SMSFs will no longer be able to enter into new limited recourse borrowing arrangements to acquire residential property. An LRBA is the long-standing carve-out to the general rule in superannuation law that funds should not borrow — it permits a fund to borrow to acquire a single asset, typically held through a separate holding (or bare) trust, with the lender’s recourse limited to that asset alone.
Three features of the SMSF residential lending ban matter enormously for planning purposes:
- Existing arrangements are grandfathered. If your fund already holds residential property under an LRBA, nothing is being unwound. There is no forced sale and no requirement to repay early.
- It applies to new borrowing, not to ownership. An SMSF may still acquire and hold residential property without borrowing, provided the acquisition is otherwise permitted and consistent with the fund’s investment strategy.
- Commercial property is not affected. Borrowing to acquire commercial property and business real property remains available under existing rules, subject to the usual superannuation requirements.
It’s also worth noting how long this has been under discussion. The 2014 Murray Financial System Inquiry recommended tightening SMSF borrowing rules, and the Council of Financial Regulators raised similar concerns in 2019 and again in 2022. In that sense the change is the culmination of a long-running, bipartisan-adjacent policy conversation rather than a sudden departure. The Treasurer has also characterised the affected segment as small, noting SMSFs represent well under one per cent of total residential property borrowing.
The most direct pivot: commercial and business real property
For trustees whose strategy relied on leveraged property exposure, the most natural continuation is commercial property — because SMSF borrowing for commercial and business real property is explicitly unaffected. This is not a workaround; it is an established, long-standing part of the superannuation framework that simply hasn’t been touched by the reform.
Commercial property inside super carries characteristics many trustees find attractive once they look closely: typically longer lease terms, tenants who commonly bear a greater share of outgoings, and — in the case of business real property — the ability for a fund to acquire premises used wholly and exclusively in a business, including in some circumstances premises used by a related business. For a business owner who has been paying rent to a third-party landlord while separately trying to build retirement assets, that structure can align two objectives at once.
The assessment is different to residential, though, and shouldn’t be treated as a like-for-like substitution. Commercial valuations, tenant covenant strength, lease expiry profiles and vacancy risk all carry more weight in a lender’s analysis. The deal narrative matters more here, not less: a credit team needs to understand the tenant, the lease, the property’s fundamentals and the fund’s capacity to service the facility through a vacancy. Presented well, these are highly fundable transactions. Presented poorly, they stall on questions that could have been answered upfront.
Other pathways that remain open
Beyond commercial property, several options continue to be available to trustees, each suiting a different objective:
Ungeared residential acquisition
A fund with sufficient liquidity can still purchase residential property outright. The absence of leverage changes the return profile and concentration risk considerably, so it warrants careful analysis against the fund’s strategy — but the door is not closed.
Property exposure without direct ownership
Listed and unlisted property trusts, A-REITs and syndicated property funds offer exposure to the asset class with materially better liquidity and diversification than a single geared dwelling — and without the borrowing question arising at all.
Structuring outside superannuation
For some investors, the better answer is that geared residential property simply belongs outside the fund — held personally, through a trust or a company structure, where borrowing remains available. This requires careful thought about tax treatment, asset protection and estate planning, and it’s very much a conversation for your accountant and adviser alongside your finance broker.
The practical risk trustees should watch
One point deserves emphasis because it catches people out: lender behaviour can move faster than legislation. When a comparable restriction was floated in 2019, all four major banks withdrew their SMSF lending products well before any law changed. Product availability is a commercial decision, not a legal one, and lenders reassess appetite whenever policy direction shifts.
The practical implication is that trustees planning any SMSF lending — including on the commercial side that remains permitted — shouldn’t assume today’s product range will be tomorrow’s. Knowing which lenders are genuinely active in SMSF commercial lending, and how each assesses these transactions, becomes considerably more valuable in a narrowing market. This is precisely where positioning a deal with the right lender, rather than the most obvious one, changes the outcome.
Where to from here
If your fund already holds residential property under an existing arrangement, the sensible first step is simply to confirm your position and continue — grandfathering protects you, and no action is required. The SMSF residential lending ban doesn’t remove the objective, only the instrument: if you were planning a leveraged residential purchase inside super, the strategy needs revisiting rather than abandoning.
For many trustees, particularly business owners, the commercial property pathway will prove not just a fallback but a genuinely better fit than the strategy it replaces. Getting there requires a clear-eyed assessment of the fund’s strategy, careful attention to how the transaction is structured, and a credit story that a lender can readily understand and support. Complex circumstances reward deliberate structuring — and this is a moment where thoughtful planning, done alongside your accountant and SMSF specialist, will serve trustees far better than haste.
Find out more here: SMSF Lending