SMSFs to be banned from borrowing to purchase residential property

To ensure the passage of the controversial Federal Budget tax changes to negative gearing and the 50% CGT discount, the Government has negotiated the support of the Greens. The cost of that support is a restriction to the SMSF borrowing rules that will prevent SMSFs from borrowing to purchase residential property.

Residential property is popular with over $62 billion in residential real estate assets in SMSFs as at March 2026. But it’s not the most popular with listed shares at $273 billion, cash and term deposits at $165 billion, and unlisted trusts at $139 billion.

What is not affected

The changes do not affect:

• SMSFs acquiring residential property where the fund did not borrow money. SMSFs can continue to acquire residential property if the fund has the finances to do so.
• Existing residential property under a limited resource borrowing arrangement.
• Refinancing arrangements for existing residential property assets.
• Contracts entered into prior to the Bill being enacted (settlement can be after the commencement date of the amendment).
• Borrowing to purchase business real property (property used in one or more businesses).

The amendments

The Bill containing the amendments is before the Senate and not yet law but is expected to pass Parliament this sitting. The amendments take effect 45 days after the Bill receives royal assent - there is no clear date, but this could be as early as late August 2026/early September 2026, assuming the Bill passes this sitting.

The Superannuation Industry (Supervision) Act 1993 prevents SMSFs from borrowing money except in certain circumstances. One of these circumstances is where the borrowing is a limited recourse borrowing arrangement and the money is used to purchase one acquirable asset. It’s here, in the meaning of acquirable asset, that the amendment does its work by restricting the type of real property that can be purchased to ‘business real property’. This restriction prevents the SMSF from borrowing to acquire any other form of real property including residential real estate.

Need assistance?

It’s important not to react to the changes without knowing the true impact on your individual scenario. We can assist you in reviewing your current position - contact us.

Who to contact:

Chris Hodgins
Director, Superannuation

Michael Zdrilic
Director, Financial Services

Reference:

• Treasury Laws Amendment (Tax Reform No. 1) Bill 2026, Income Tax Rates Amendment (Tax Reform No. 1) Bill 2026.

• Consequential amendment Schedule 5 - Limited recourse borrowing arrangements

• Government another step closer to delivering tax reforms