LRBAs Are Not Dead: What Are Some Options To Use LRBAs Moving Forward?

In light of the recent legislative changes, you may be questioning whether limited recourse borrowing arrangements (LRBAs) are still useful. The answer is yes, LRBAs may still be used in certain circumstances.

While self managed superannuation funds (SMSFs) can no longer use LRBAs to acquire residential property, borrowing opportunities remain available, particularly for business owners looking to acquire a commercial premise through their SMSF.

Recent Changes

From 10 August 2026, self managed superannuation funds (SMSFs) can only use LRBAs to acquire real property that is business real property.

This was introduced in the Treasury Laws Amendment (Tax Reform No. 1) Act 2026 and was effective 45 days after the Act received assent (26 June 2026).

There are strict rules that prohibit an SMSF from borrowing money, except in the circumstances where a valid LRBA has been established. Until 10 August 2026, SMSFs could use LRBAs to acquire any type of asset except for cash or currencies.

However, from 10 August 2026 onwards, SMSFs can only use LRBAs to acquire real property that is business real property. This means that SMSFs can no longer use LRBAs to acquire residential property.

What is NOT changing?

The new legislation does NOT:

1. Impact any LRBAs in place before 10 August 2026;
2. Prevent SMSFs from refinancing any existing LRBAs in place before 10 August 2026, subject to certain conditions being met;
3. Prohibit SMSFs from borrowing money or otherwise change the operation of the provisions about SMSFs borrowing money;
4. Prohibit SMSFs from acquiring residential property with cash (i.e. no borrowing); or
5. Prohibit SMSFs from using LRBAs to acquire other eligible assets such as shares, units or assets other than real property (although there may be other compliance provisions to consider if this is appropriate).

What is business real property?

Business real property is defined in the Superannuation Industry (Supervision) Act 1993 (Cth) to include property that satisfies the following:

1. Real Property – this includes freehold or leasehold interests in real property, interests in Crown land and any other interest in real property prescribed by the regulations;
2. Used for Business – the real property must be used wholly and exclusively in one or more businesses, regardless of who carries on the business; and
3. Not Trust Estate – the property is not an interest held in the capacity of beneficiary of a trust estate.

SMSFR 2009/1 provides further guidance on what is business real property. For example, it confirms that land will remain business real property even if, at the time the SMSF acquires the property, a business has vacated the premises at the end of a lease and it is untenanted while the owner is looking for a new tenant or negotiating terms with another business. This means untenanted commercial property can still fall within the definition of business real property. A common trap is mixed use property that is used partly for residential purposes and partly for business purposes. For example, property that includes a pub and an apartment upstairs may not satisfy the definition of business real property.

There is a special rule which allows real property used in primary production businesses to be considered business real property, even if there is a residential dwelling (i.e. house) on part of the property, subject to some restrictions.

Options Moving Forward

Whilst LRBAs can no longer be used to acquire residential real property, there are several options moving forward.

These options include:

1. Buying Residential Property with cash

SMSFs can still acquire residential property using cash and without borrowing.

2. Buying Commercial Property with LRBAs

Any commercial property that is being used wholly and exclusively in any business/es can be acquired by SMSFs using LRBAs.

Before investing, it is important to ensure the property satisfies the definition of business real property. The property can be used by multiple businesses, provided the whole property is being used only to carry on a business.

3. Buying non-Residential Property with LRBAs

Eligible assets, other than real property, can continue to be acquired by SMSFs using LRBAs, provided the relevant requirements are satisfied.

Before investing, it is important to ensure the assets satisfy the “single asset rule” which provides that each LRBA must hold a single asset. There are some exemptions for a group of identical assets with the same market value (i.e. a parcel of shares in the same company).

It also important to consider whether investing in those assets would breach any other provision before investing in those assets (e.g. in-house asset test, acquiring assets from related parties etc). This is particularly important if investing in private companies and unit trusts.

4. Buying Business Premises with LRBAs

Business owners can continue to use LRBAs to allow their SMSFs to borrow to acquire the property where they operate their business.

The SMSF must put in place a market value lease on arm’s length terms with the business to avoid in-house asset issues.

This option allows business owners to pay rent to their SMSF instead of to an unrelated landlord. This may help business owners to build retirement wealth while also retaining control of their business premises and providing confidence the business owners can continue to use the property to operate their business.

Before investing, as discussed above it is important to ensure the property satisfies the definition of business real property. It is also important to ensure that the acquisition aligns with the investment strategy of the fund.

5. Buying Primary Production Premises with LRBAs

Farmers can continue to use an LRBA for their SMSF to acquire farming land.

Again, before investing, it is important to ensure the property satisfies the definition of business real property, that you are carrying on a primary production business (i.e., it isn’t a ‘hobby’) and the acquisition aligns with the investment strategy of the fund.

The special rule also allows the farmer to continue to live on the farm, provided it satisfies the requirements about the size of the dwelling and predominant use of the property.

Obtain Advice

SMSF trustees should obtain legal, accounting and financial advice before establishing an LRBA or acquiring any asset through their SMSF. Whether an LRBA is appropriate will depend on the trustee’s objectives, financial position and investment strategy. We strongly recommend speaking with your financial adviser regarding the financial suitability of any proposed investment.

Conclusion

Although SMSFs can no longer use LRBAs to acquire residential property, LRBAs remain a valuable planning tool. Business owners, primary producers and other SMSF trustees may still be able to use borrowing arrangements to acquire eligible assets and business real property in their SMSF. However, it is important to get advice to ensure the proposed investment and borrowing structure complies with the new rules before proceeding and are suitable for the objectives of the fund and members.