“Our SMSF is buying property with borrowed money. Do the new rules affect the deal we are currently working on?”

For SMSF trustees considering property, this was one of the more important rule changes of the year.

Changes to the SMSF borrowing rules became law on 26 June 2026, limiting the types of property that could be purchased using a limited recourse borrowing arrangement, or LRBA. For transactions that were already underway at the time, 10 August 2026 became an important cut-off date.

What has changed?

SMSFs can still borrow in limited circumstances, but under the new rules, property purchased through an LRBA generally needs to satisfy the definition of business real property. This is important because business real property is determined largely by how the property is used, rather than what it looks like or how it is zoned.

That is why simply saying “residential property is banned” does not tell the whole story.

For example, a residential-style terrace that is used wholly and exclusively as a medical practice could potentially satisfy the business real property definition. On the other hand, a property that looks commercial could potentially fail where there is mixed business and residential use on the same title.

The 10 August transitional deadline

The new legislation included a 45-day transitional period ended on 10 August 2026.

That transitional period may have allowed some non-business-real-property transactions already underway to proceed under the previous rules, where the relevant arrangement to purchase the property was entered into on or before 10 August 2026, even if settlement occurred later.

Because that test depends heavily on the facts of each transaction, trustees who had deals underway around that date should now confirm whether their arrangement actually qualified for the transitional treatment rather than assuming it did.

What about existing SMSF loans?

The new rules allow existing LRBAs over non-business-real-property assets to continue.

Existing arrangements may also still be refinanced, subject to lender availability and approval. That means trustees with an existing SMSF residential property loan do not automatically need to sell the property simply because the rules changed.

What should trustees do?

If you already have an LRBA, or entered into one around the transition period, ask:

• What is the property actually used for?
• Does that use satisfy the business real property definition?
• Is there any mixed private or residential use?
• When was the purchase arrangement entered into?
• Did the transitional provisions apply?
• Does the SMSF’s investment strategy still support the transaction?

And because borrowing inside an SMSF involves super, tax, legal and lending rules at the same time, this is very much an area where the paperwork matters.

Final thought

The new rules do not completely shut the door on SMSFs borrowing to buy property. They do, however, make the doorway much narrower.

If your fund entered into a property arrangement around the 10 August 2026 transitional deadline, or currently has an LRBA in place, speak with your Aspen advisor and specialist SMSF legal adviser to make sure the arrangement still fits within the new rules.