The Government has confirmed what many of us feared was coming. As part of its deal with the Greens to secure passage of the CGT and negative gearing reforms announced in the 2026–27 Federal Budget, Labor has agreed to close the door on limited recourse borrowing arrangements (LRBAs) for residential property inside SMSFs.
This is a significant change — but it’s not the end of LRBAs. Let me cut through the noise.
What’s actually changing
The Government will be required to amend sections 67A and 67B of the Superannuation Industry (Supervision) Act 1993 to restrict SMSF borrowing for residential property. Commercial property — aka, Business Real Property — will remain accessible under the LRBA framework.
If you’re familiar with how the related party acquisition rules work in s.66 of the SIS Act, you’ll understand that subsection (5) has definitions that prescribed some of the exceptions, including BRP. I’d expect to see the Business Real Property definition embedded directly into the borrowing rules to draw the line clearly between what’s in and what’s out.
The practical effect: an SMSF will no longer be able to borrow to acquire a residential property under a limited recourse arrangement. Existing LRBAs are expected to continue — though transitional provisions and grandfathering rules will be critical to watch as the legislation is drafted.
A history worth knowing
This doesn’t come out of nowhere. LRBAs have had a chequered history since the moment they were introduced.
The original instalment warrant provisions under s.67(4a) came into effect on 24 September 2007. Those were replaced by the current LRBA framework from 7 July 2010.
Almost immediately, the scrutiny began:
- The Super System Review (Cooper Review, 2010) flagged borrowing as a concern and called on the government to review the use of these rules.
- The Financial System Inquiry (FSI, 2014 — chaired by David Murray) went further and recommended the LRBA provisions be removed entirely.
- The then-Liberal Government chose not to proceed with the recommendation — but what followed was a series of Council of Financial Regulators (CFR) reviews that each concluded LRBAs posed no systemic risk to the superannuation system.
In the decade since, major lenders exited the space entirely, leaving second-tier and specialist lenders to fill the gap. And all the while, ASIC was rightly going after unlicensed property spruikers who were using SMSFs as a vehicle for property promotions — often with little regard for members’ best interests.
The Greens’ play — and where I push back
This is the context for what happened politically. The Greens’ negotiating position centred on housing affordability, and LRBAs were caught in the crossfire. The argument: SMSF borrowing competes with first home buyers in the residential market and inflates prices.
I’ll be direct. The promoters are the problem — not the structure itself.
LRBAs in residential property have been misused by a small but visible cohort of operators more interested in commissions than retirement outcomes. ASIC has pursued them, and rightly so. But that’s a conduct and licensing problem. Using it as evidence that the entire framework is distorting the housing market is, in my view, a significant overreach. Hiding behind previous reviews to now make a decision smacks of desperation of a Government back-pedalling from the backlash of their budget announcements.
The residential property segment of the LRBA market is not material enough to be moving housing prices. This was always a policy optic play, not an evidence-based reform.
That said — it’s done.
The silver lining: commercial property survives
The good news, and it genuinely is good news, is that LRBAs for commercial property remain intact.
For small business owners who use their SMSF to hold their business premises — an entirely legitimate and well-established strategy — nothing changes. The ability to acquire Business Real Property via an LRBA remains an important planning tool, and I’m glad the Government had the political sense not to touch it. Removing commercial property borrowing would have generated significant backlash from the small business community with no justification from the Greens’ housing platform.
What to do now
If you’re an adviser or trustee with existing LRBAs over residential property, the immediate focus needs to be on:
- Transitional provisions — what the grandfathering rules look like for existing arrangements, and whether any conditions attach (e.g. restrictions on refinancing or variation).
- In-progress transactions — any residential LRBA currently in the pipeline needs to be reviewed urgently. Timing relative to the effective date will matter.
- Client communications — members who had residential LRBA strategies in their financial plans need to be contacted. The strategy needs to be reassessed.
We’ll be updating our document suite and publishing a dedicated analysis on the legislative mechanics as the exposure draft is released. If you’re a Smarter SMSF member, watch for updates in your inbox.
Final word
This reform closes a chapter that was always politically vulnerable. The LRBA rules have been in the government’s sights since before most advisers first dealt with one. The residential property ban is the outcome — and while I don’t necessarily disagree with the policy rationale with residential property, I’m pragmatic enough to say this: the SMSF sector will adapt, as it always does.
Commercial property LRBAs remain a powerful and legitimate strategy for small business. Make sure your clients know what’s changed — and what hasn’t.
