From 10 August SMSFs can't borrow to buy residential property. Contracts signed by 9 August count

This article is general information only and does not constitute financial or tax advice. Consult a qualified tax professional for advice specific to your situation.

This article is general information only and does not constitute financial, tax or investment advice. SMSF decisions must be made against the trustee's specific circumstances, the fund's investment strategy and the sole purpose test. Speak to a licensed adviser before signing anything.

The Treasury Laws Amendment (Tax Reform No. 1) Act 2026 is the piece of legislation the federal government has hung its whole housing tax overhaul on. Most of the discussion has been about the negative gearing and CGT reset that commences 1 July 2027. A second, quieter provision changes the SMSF property landscape in 32 days.

From Monday 10 August 2026, a self managed super fund cannot enter a new limited recourse borrowing arrangement to acquire residential property. Existing arrangements are grandfathered. Business real property is preserved. Refinancing is allowed provided the principal balance does not increase. Everything else has to be settled, contracted or shelved before the deadline.

The 45 day contract window explained

The Bill passed both houses of Parliament on 26 June 2026 and received Royal Assent the same day. The commencement provisions written into the amendment give a 45 day transition window before the ban switches on. That puts the cutoff at Monday 10 August 2026.

The rule that matters for anyone mid-strategy is that it is the contract, not the settlement, that has to fall before the cutoff. A trustee who exchanges a binding contract to purchase residential property on or before Sunday 9 August 2026 can still settle after 10 August and still use an LRBA to complete the purchase.

The corollary is that anything that is not a binding contract by 9 August fails the test. Subject-to-finance contracts that only convert to unconditional on receipt of the lender approval after 10 August do not qualify. Option contracts that are exercised after the cutoff do not qualify. Off-the-plan contracts that are signed before the cutoff do qualify, even where the property is not built or registered until 2028 or later.

Trustees in the pipeline right now sit in three buckets:

1. Contract already exchanged, settlement pending. Nothing to do. The LRBA lender documentation runs through as planned. Watch the settlement clock, not the ban clock.
2. Property identified, finance approval outstanding. This is the group with the exposure. If the finance approval and the contract exchange cannot both be locked before Sunday 9 August, the LRBA path closes.
3. Considering starting the process. The lender panel needs about two to six weeks to originate a new SMSF LRBA from application to approval, depending on the fund's structure and the property. A trustee still in the thinking phase in the first week of July is not likely to close a new deal in time.

The realistic hard stop for new applications is roughly the end of the third week of July. Two weeks of lender work, plus a week of legal, plus a week of exchange preparation, does not compress well.

What the ban does not do

The ban does not force SMSFs to sell existing residential LRBA holdings. Every arrangement in place at 10 August 2026 runs to its natural conclusion under the pre-ban rules. Loan payments continue, rent collection continues, the deductions available under the current LRBA framework continue.

The ban does not prevent an SMSF from refinancing an existing residential LRBA. It is explicit in the amendment that a refinance to a new lender is allowed, provided the principal loan balance at settlement of the refinance is not higher than the principal loan balance immediately before. A trustee shopping the current 6.64% to 7.50% rate band from May 2026 against the fixed rate that was written into a 2022 or 2023 deal can still move the loan. What is not allowed is a cash-out refinance that lifts the principal.

The ban does not prevent an SMSF from acquiring residential property with cash. If the fund has enough cash on hand or can accept an in-specie contribution of the property, the acquisition proceeds under the standard SIS Act rules on related-party acquisitions, the sole purpose test and the fund's investment strategy. The concentration risk that critics like the SMSF Association argued was the real policy concern is not necessarily reduced by the ban.

The ban does not touch commercial property. Business real property, defined in section 66(5) of the Superannuation Industry (Supervision) Act 1993 as real property used wholly and exclusively in one or more businesses, is explicitly carved out. A trustee buying a warehouse used in the beneficiary's business, or an office suite leased to an arm's length tenant that runs a business from it, can still use an LRBA after 10 August 2026.

The size of the affected market

The ATO's SMSF quarterly statistical report for March 2026 records the shape of the sector the ban lands on:

• 672,805 self managed super funds.
• 1.24 million members.
• $1.06 trillion in total assets.
• ~$75 billion in LRBA related assets, about 7% of the total.
• ~$29 billion in actual LRBA borrowings, about 2.7% of the total.
• ~$178 billion in Australian property held across the sector, split roughly $55 billion residential and $102 billion non-residential on the most recent ATO break.

The residential LRBA slice is not the whole SMSF property allocation. It is the geared corner of it. That is the pool the grandfathering rules protect. Property held outright, inside SMSFs that never borrowed, is not affected by the ban and is not the subject of the policy.

The bank list for SMSF residential lending has been thin for years. All four major banks exited the SMSF residential loan market in 2018 and 2019, following the Shorten opposition proposal to remove LRBAs entirely. That withdrawal was never reversed. New SMSF residential lending in 2026 has come from a specialist non-bank panel that includes Liberty Financial, Bluestone Home Loans, La Trobe Financial, Pepper Money, Firstmac, Mortgage Ezy, Resimac and WLTH, plus Bank of Queensland at the smaller-bank end and AMP Bank, which returned to the segment in Q1 2026 after a multi-year withdrawal.

Advertised SMSF residential variable rates on that panel sat in the 6.64% to 7.50% band on May 2026 data, with comparison rates from roughly 6.7% to 7.9%. Those rates apply to the last four weeks of loan originations before the panel writes its last new residential book. Post 10 August, the panel pivots to commercial, refinancing and grandfathered maintenance work.

What a trustee should actually do this week

If a trustee is considering signing a residential contract inside the SMSF before the cutoff, the decision has to be a real decision, not a rushed one. The ban does not create an investment case that was not there yesterday. It creates a deadline. A deadline is a bad reason to buy a property that would not stack up on its own numbers.

For a trustee where the numbers already stack, the practical checklist for the next four weeks looks like this:

1. Confirm the fund's investment strategy already permits the acquisition. If it does not, update the strategy in writing with trustee minutes before the contract, not after.
2. Get finance pre-approved on a specific property, not indicative. The panel of active lenders is running at capacity into the deadline. Indicative letters written in the last week of July may not convert to formal approval in time.
3. Have the LRBA bare trust deed and holding trust structure documented before the contract. The property has to be acquired in the name of the holding trustee for the SMSF, not in the name of the SMSF trustee directly.
4. Cross-check the sole purpose test and related party rules. The property has to be acquired at arm's length. The fund cannot use it as personal accommodation. Standard SMSF residential rules still apply.
5. Model the yield, not just the capital growth. On the Cotality Q2 2026 rental read, national gross yields have lifted to about 3.7%. On an SMSF loan at 6.85% variable, the loan interest exceeds the rental yield by around 315 basis points on a new geared purchase. That gap has to be funded from other fund income or contributions until values or rents move it back.

For a trustee where the numbers do not stack, the deadline is not the trigger to act. Ungeared SMSF property acquisitions still work under the sole purpose test. So does an existing arrangement inherited by the fund via death or divorce, where the acquisition mechanics do not require an LRBA at all.

The interaction with the negative gearing reset

The SMSF LRBA ban does not stop the negative gearing changes coming on 1 July 2027. Those changes apply to residential investment properties held by individuals, joint owners and trusts. The interaction with SMSFs is indirect and it matters.

Under the current settings, an SMSF operating an LRBA on a residential property is limited to a 15% concessional tax rate on rental income and 10% or 15% CGT on eventual sale. Losses inside the fund cannot be offset against a member's personal income under any circumstances. That is a long-standing rule and it does not change on 1 July 2027.

Where the interaction bites is on the incentive to hold property inside super rather than in personal name. From 1 July 2027, a personally held residential investment property acquired after 12 May 2026 loses the ability to offset losses against wage income and loses the 50% CGT discount. A grandfathered personally held property keeps both. An SMSF held property has always been treated at the fund's concessional tax rate and has always had losses quarantined inside the fund. The relative advantage of holding property in super versus in personal name shifts slightly in favour of super for new acquisitions post 1 July 2027, provided the fund can service the loan without gearing.

The LRBA ban closes off the leveraged pathway to that outcome for residential property from 10 August 2026. The unleveraged pathway remains open. Trustees planning to acquire a residential rental in the fund from 2027 onward will need enough cash inside the fund to complete the purchase without borrowing.

What the industry is asking for

The SMSF Association has not conceded the ban and is pushing the government for a carve-out for LRBAs on newly built residential property. The argument is that a targeted exemption for new dwellings would preserve the SMSF sector's contribution to new supply while removing the political concern about SMSFs bidding for existing stock. The advocacy has not yet produced a government response.

Peter Burgess has been public about the view that 'review after review' has found LRBAs pose no material risk to the superannuation system, and that if property spruikers and high-pressure sales tactics are the issue, the answer is to target that conduct directly rather than remove the borrowing structure. Whether that argument produces an amendment before 10 August 2026 is now a live political question. The base case is that the ban commences as legislated and any softening is a 2027 or later conversation.

The bottom line

10 August 2026 is a hard date. It is 32 days from the publication of this article. It does not affect existing SMSF residential LRBAs. It does not affect commercial or business real property LRBAs. It does not affect ungeared SMSF property purchases. It closes the door on new residential LRBAs and preserves the settings for arrangements already in place.

For an SMSF trustee sitting on a property decision this week, the shape of the answer is: either the deal makes sense on its own numbers and it needs to be moved to a binding contract by 9 August 2026 with financing in place, or it does not and the deadline is not a reason to force it.

Propkt's mortgage repayment calculator is set up for standard residential and investment loans. For SMSF specific serviceability modelling, the fund's licensed adviser or accountant is the right first stop. What Propkt does help with is the ongoing side of the equation after settlement: expense tracking, rent management, depreciation schedules and the full-year cash flow view a trustee needs to keep the sole purpose test defensible at audit.

The window is 32 days. Use it deliberately or leave it alone.