Residential property LRBAs to be banned: what SMSF trustees need to know

On 23 June 2026 the government and the Australian Greens confirmed a Senate deal on the first tranche of tax reform legislation. The price of the Greens’ support is an amendment that will ban future limited recourse borrowing arrangements (LRBAs) by self-managed super funds for residential property. LRBAs have allowed SMSFs to borrow money to buy property since 2007.

The legislation is the Treasury Laws Amendment (Tax Reform No. 1) Bill 2026. The broader package does two things outside super: it replaces the 50% CGT discount for individuals, trusts and partnerships with cost-base indexation plus a 30% minimum tax rate from 1 July 2027, and it limits negative gearing on residential investment property purchased after Budget night (7:30pm AEST, 12 May 2026). Both measures explicitly exclude superannuation funds.

The SMSF amendment is the focus here. It was a condition of the Greens’ Senate support, negotiated after the Senate Economics Committee reported on 19 June 2026. It changes a structure many trustees are either using or actively considering.

The bill has not yet passed. With the Greens’ announced support, the numbers are now there in the Senate, and we would expect passage within the next two weeks.

The honest headline

The news cycle will frame this as “the Greens are banning SMSFs from buying property”. That framing is wrong, and it matters that trustees don’t act on it.

Here is what the announced amendment actually does:

• It bans new LRBAs for residential property. SMSFs will not be able to enter into new residential property LRBAs once the change commences. LRBAs for non-residential acquirable assets, including commercial property, business real property and listed shares, remain available under the existing ss 67A and 67B framework. The expected mechanism is a residential-property carve-out from the LRBA-permitted assets, rather than a wholesale repeal of ss 67A and 67B, but the precise drafting will need to be reviewed once the amended bill text is published.
• It is prospective. Existing LRBAs are not affected. The change applies to new arrangements only.
• There is a 45-day transition window between Royal Assent and commencement, intended to allow contracts and arrangements already in train to be finalised.
• Contracts signed before commencement are protected.

It does not stop an SMSF buying property outright. It does not unwind any existing LRBA. It does not change the tax treatment of property already held inside super.

What’s actually changing

The legal mechanism is narrow. Section 67 of the SIS Act 1993 prohibits a regulated super fund from borrowing money. The policy reason is that leverage introduces risk into a vehicle whose purpose is retirement savings.

An exemption was first introduced in 2007, as the former s 67(4A) of the SIS Act. In July 2010 that provision was repealed and replaced with the current ss 67A and 67B, which form the operative LRBA framework today. Under those sections, an SMSF can borrow under a limited recourse arrangement to acquire a single acquirable asset, with the lender’s recourse on default restricted to the asset acquired (and any replacement asset under s 67B).

That is the exemption the Greens amendment narrows. Rather than a wholesale repeal of ss 67A and 67B, the expected mechanism is an amendment that excludes residential property from the assets an SMSF can acquire under an LRBA. The drafting could take several forms: a definition-based exclusion, an amendment to the “single acquirable asset” test, or a separate prohibition operating on top of s 67A. The actual amended bill text has not yet been published. The scope of any definition of “residential property” (including edge cases like mixed-use, vacant land, off-the-plan, short-stay rentals, rural residential, and properties with separate dwellings) will need to be reviewed once available.

Practically, that means:

• New residential property LRBAs: not available from the date of commencement. A trustee who wants to use borrowed money to fund a residential property purchase inside an SMSF will need to have a contract signed before that date.
• New non-residential LRBAs: still available. A fund wanting to use an LRBA to acquire business real property (a commercial premises, a farm, or a business operating site) or listed shares can continue to do so under the existing ss 67A and 67B framework.
• Existing LRBAs of any kind: continue under the existing rules. The PM’s release confirms protection applies to “any existing SMSF borrowing arrangements”, not limited to residential. The fund can keep paying the loan down, hold the asset, and deal with the asset at the end of the loan in the normal way.
• Refinancing an existing residential property LRBA: this is the single biggest piece of detail we are watching, and it is more than an open question. Under existing law, a refinance is treated as a new LRBA that must independently satisfy s 67A. That is the consistent position taken in SMSF technical commentary. Unless the bill’s saving provisions expressly carve out refinances of existing residential property LRBAs, a post-commencement refinance would fall foul of the new prohibition. The drafting could go either way. The default reading under existing law is the more restrictive one. Refinances of non-residential LRBAs sit inside the surviving regime and are not affected.
• Related-party LRBAs: same treatment in principle. PCG 2016/5 and its safe-harbour terms remain relevant for existing arrangements.
• Bare trust structures: existing holding trusts continue to hold the LRBA property under the existing arrangement, unaffected.

The Greens have also secured a second amendment. It strips the Treasurer of discretion to add asset classes to the 50% CGT discount, and discretion to prescribe property investments eligible for negative-gearing deductions against salary and wage income.

The 50% CGT discount is itself being replaced under the broader bill. From 1 July 2027, individuals, trusts and partnerships move to cost-base indexation plus a 30% minimum tax rate. SMSFs use a different rate (33⅓%) and are unaffected. What this second amendment locks down is the Treasurer’s ability to extend the existing concessions to new asset classes before they sunset.

It does not affect SMSFs directly. But it does signal which way the policy is heading on property-linked tax concessions.

What’s not changing, and why it matters

The non-changes are worth listing because the coverage is going to muddle them.

• LRBAs for non-residential assets: unchanged. SMSFs can continue to use LRBAs to acquire business real property, commercial property, listed shares, and other non-residential acquirable assets under ss 67A and 67B as they currently stand.
• Outright property ownership inside an SMSF: unchanged. A fund with the cash to buy a property outright can still do so, subject to the sole purpose test (s 62 SIS Act 1993), the in-house asset rules (Part 8 SIS Act 1993), and the related-party acquisition restrictions in s 66.
• Existing LRBAs: unchanged. Whatever the loan and bare trust documentation said yesterday, it says today.
• Business real property acquired from a related party: still permitted under s 66(2)(b) SIS Act 1993, subject to the business real property definition in s 66(5) and the tests in SMSFR 2009/1, with or without borrowing. The BRP test is use-based, not type-based. A residential dwelling used wholly and exclusively in a business (a serviced apartment, a B&B) can qualify as BRP. How the new “residential property” definition handles those cases is still to be confirmed.
• The 33⅓% CGT discount on SMSF assets (s 115-100(b) ITAA 1997): unchanged. The 50% CGT discount being replaced in the broader bill applies only to individuals, trusts and partnerships. Superannuation funds, including SMSFs, are explicitly excluded from the Schedule 1 changes and continue to use the 33⅓% discount.
• Contribution caps, the transfer balance cap, exempt current pension income (ECPI), Division 296: all unchanged by this amendment.

Timing, and what we don’t yet know

The transition window is generous on paper and tight in practice.

The amendment, as described in both the Greens’ and the government’s announcements, takes effect 45 days after Royal Assent. Contracts signed before commencement are protected. If the bill passes the Senate this fortnight as expected, Royal Assent could fall in early to mid-July 2026. Commencement would then fall in late August or early September 2026. These are estimates only. The actual dates depend on the parliamentary timetable and the date of assent.

For a trustee who already has a residential property under contract and an LRBA in setup, 45 days is probably enough to settle. For a trustee starting from scratch (choosing a property, getting finance approved, executing the bare trust, signing the contract), it is tight, and it gets tighter every week the bill moves through.

A few things we are watching:

• The exact legislative text and the precise saving provisions
• Whether “contracts signed before commencement” means the property contract, the LRBA loan documentation, or both
• Whether existing residential property LRBAs can be refinanced after commencement, or whether refinancing will be treated as a new arrangement
• The definition of “residential property” in the bill, and how it treats mixed-use, vacant land, off-the-plan, short-stay rentals, rural residential, and residential dwellings used wholly in a business (BRP)
• Whether the residential-only scope holds through the legislative passage or broadens
• Whether the SIS Regulations will need consequential amendment to reflect the change
• Whether the ATO will issue transitional guidance, and on what timetable

We will update this article as the bill passes and the actual provisions are confirmed.

What to do, by situation

If you have an existing LRBA in your SMSF. Nothing changes for you immediately. Your loan, your bare trust, and your fund continue under the existing rules. The question worth taking to your adviser is whether your long-term strategy on the loan, including paydown, refinance, and eventual disposal, needs adjusting in light of the change.

If you have a residential property LRBA in train, with a contract signed or under negotiation and finance arranged or being arranged. This is the audience with the tightest window. Get clarity on where your contract sits, when it can be signed, and whether your lender’s timelines fit inside the transition. Talk to your accountant and your adviser this week, not next month.

If you are considering starting an SMSF specifically to borrow to buy property. Whether the change affects you depends on the property type. For residential property the window is closing, and a contract signed before commencement is the only way in. For commercial property or business real property the LRBA path remains open under the existing rules. Either way, whether to fit a new LRBA into the transition period is a suitability question. It depends on your timeline, your cash position, your appetite for the SMSF compliance burden, and your view on the property itself. That conversation belongs with a licensed financial adviser. We can help with the SMSF establishment side; the should-you question sits with your adviser.

If you advise SMSF trustees. You will be having more of these conversations than usual over the next eight weeks. We are happy to help on the technical end: SMSF establishment, compliance, and transition mechanics. The suitability and product-advice side is yours.