Attwood Marshall Lawyers Property and Commercial Law Senior Associate Tobie Mitchell looks at the rapidly changing property investment landscape following Budget night. He reviews the ban on residential property borrowing by self-managed superannuation funds (SMSFs), and the opportunities and risks that remain for investors considering commercial property or outright purchases through super.
A changing landscape for property investors
For many Australians who invest in residential property, the familiar path usually involves buying an established investment property, negatively gearing the losses against personal income, holding the property for capital growth, and relying on the capital gains tax discount when the property is eventually sold.
An increasing trend has seen investors use SMSF borrowing as the preferred vehicle for acquiring property assets (including residential property) due to the favourable taxation allowances and the ability to borrow funds for this purpose.
On 12 May 2026, the Federal Government announced substantial reforms to the taxation of residential property investment. The changes include limiting negative gearing for residential property investments to new builds and replacing the existing 50 per cent capital gains tax discount for individuals, trusts and partnerships with cost-base indexation and a 30 per cent minimum tax rate on capital gains.
The negative gearing changes are intended to grandfather properties held at 7:30pm AEST on Budget night, while the CGT reforms will apply to gains accruing from 1 July 2027.
The investment landscape changed again on 23 June 2026, when the Federal Government announced it had agreed to support an amendment banning future Limited Recourse Borrowing Arrangements, commonly known as LRBAs, for residential property acquired by superannuation funds.
The Government said the restriction was intended to address risks to retirement savings identified in several previous inquiries.
The amendment subsequently passed Parliament and became law.
From 10 August 2026, an SMSF can no longer enter into a new LRBA to acquire real property, unless the property satisfies the statutory definition of “business real property”.
Arrangements entered into before that date are not affected, and the refinancing of an existing arrangement is also protected.
For property investors, this closes off what had appeared to be one of the most obvious alternatives to the traditional negatively geared residential investment property.
SMSF borrowing: the alternative that disappeared almost overnight
In the weeks following Budget night, it was reasonable to expect that more investors would turn their attention to SMSF borrowing.
An SMSF allows its members to exercise greater control over the investment of their retirement savings. Until now, an LRBA could be used to enable an SMSF to borrow money to acquire a residential or commercial property, provided the arrangement satisfied strict superannuation requirements.
The strategy is attractive. It allows the use of superannuation savings as part of a leveraged property investment to build wealth.
However, the Government has now removed new residential property LRBAs from the equation. An SMSF wishing to invest in residential property after the LRBA commencement date will generally need to fund the entire purchase without borrowing.
What remains available?
The legislative change does not amount to a complete ban on SMSFs investing in property.
Rather, it changes which types of real property can be acquired using an LRBA.
From 10 August 2026:
- an SMSF cannot enter into a new LRBA to acquire ordinary residential property;
- existing residential LRBAs are not affected;
- refinancing of an existing protected LRBA is not affected by the new restriction;
- an SMSF may still acquire residential property outright using available fund money, without borrowing; and
- an SMSF may still use an LRBA to acquire real property that qualifies as “business real property”.
It may be tempting to describe the exception as permitting LRBAs for all “commercial property”, but that is not quite the legal test. The property must satisfy the definition of business real property under the superannuation legislation.
Broadly, this requires the property to be used wholly and exclusively in one or more businesses, subject to the precise statutory requirements and limited exceptions.
Warehouses, offices, retail premises, medical suites and other genuine business premises may qualify. However, mixed-use properties, vacant land and certain rural or other properties may require much closer examination before anyone assumes that an LRBA remains available.
Investors should therefore obtain advice about the particular property and its use before signing a contract.
When the cash flow stops
An SMSF may rely on a combination of rental income and ongoing superannuation contributions to meet mortgage repayments and property expenses.
If a member loses their job, employer contributions may stop. If they are self-employed and their business slows down, voluntary or concessional contributions may also reduce or cease. If the fund has been relying on those contributions to meet mortgage repayments, rates, insurance, land tax, body corporate levies, repairs or professional fees, it may suddenly find itself under significant pressure.
The same problem arises if the property loses a tenant. Depending on the market, it may take weeks or months to secure a new tenant. During that period, the SMSF must continue meeting mortgage repayments and all other property expenses.
The position can become more serious if vacancy coincides with an interest-rate increase, a substantial repair, a fall in property value or an insurance dispute.
Fire, flood, storm damage, vandalism and tenant damage present further risks. Insurance is essential, but an insurance claim may take time to resolve, may be subject to exclusions or excesses, and may not cover every economic loss suffered by the fund.
This is how a strategy that appears attractive on paper can become a threat to a member’s retirement savings.
When an investor uses superannuation to enter the property market, they are concentrating a large proportion of their retirement capital into one leveraged and illiquid asset, without enough cash to manage an unexpected event.
The residential LRBA ban may remove that risk from future residential acquisitions, but it does not eliminate it for existing arrangements or for future LRBAs involving business real property.
Commercial property is not risk-free
The continuation of LRBAs for business real property is likely to direct greater investor attention towards commercial property.
For some SMSFs, commercial premises may be a suitable long-term investment. In appropriate circumstances, business owners may also consider acquiring premises through their SMSF and leasing them to their operating business, provided the arrangement complies with the superannuation legislation, related-party rules and arm’s-length requirements.
However, commercial property should not be treated as a simple replacement for residential property.
Commercial properties can experience longer vacancy periods, more significant fit-out and maintenance costs, and greater exposure to the financial position of a single tenant. The value and marketability of a commercial property may also depend heavily on its permitted use, location, lease terms and the strength of the local business market.
If the tenant is a business operated by an SMSF member or a related party, the lease and all payments must be carefully documented and conducted on proper commercial terms. The fund cannot be used to provide informal financial assistance or favourable occupancy arrangements to members or their businesses.
Before acquiring business real property through an LRBA, trustees should carefully consider whether the fund could continue making repayments if the premises became vacant or the related business could no longer pay rent.
The property pivot continues
The ban on new residential LRBAs changes the direction of property investment.
Investors who might previously have purchased an established residential property personally may now consider a new build because of the revised negative gearing rules.
SMSF trustees with sufficient capital may consider an outright residential purchase.
Others may investigate commercial premises or other property satisfying the business real property definition through a permitted LRBA.
Each strategy carries different legal, taxation, financial and practical consequences.
It’s important not to rush from one property structure into another merely because the tax or borrowing rules have changed.
The starting point must remain whether the proposed investment is appropriate for the investor or SMSF, whether it can withstand adverse circumstances, and whether it supports the fund members’ long-term retirement interests.
Attwood Marshall Lawyers – your local property law experts
The Australian property investment landscape has changed substantially in a short period.
For investors and SMSF trustees, it is important to understand what has been banned, what remains available, how the new rules apply to a particular property, and whether the proposed structure is legally and commercially sustainable.
Our Property and Commercial Law team can assist with SMSF property purchases, commercial and business real property transactions, conveyancing, holding trust and permitted LRBA structures, review of loan and mortgage documents, and independent legal advice for guarantors. It is also advisable to review your overall business structuring and personal estate planning in light of the significant tax changes made to trusts and SMSFs.
We can also work alongside your licensed financial adviser, accountant and SMSF specialist to ensure the legal structure and property transaction reflect the strategy recommended for your circumstances.
Careful advice at the beginning can help avoid expensive mistakes at the end. For advice, book an appointment with our property lawyers. Call us on 1800 621 071.
