Limited recourse borrowing arrangements (LRBAs) for SMSFs

A limited recourse borrowing arrangement, or LRBA, allows an SMSF to borrow money to acquire certain eligible assets.

New restrictions affecting real property LRBAs will commence on 10 August 2026. From that date, real property acquired under a new LRBA must meet the legal definition of business real property.

Important 2026 update

The Federal Government has passed legislation changing the types of real property an SMSF can acquire through a new LRBA.

The changes commence on 10 August 2026.

From that date:

• Real property acquired under a new LRBA must be business real property

• Ordinary residential investment property will generally no longer be eligible for acquisition through a new LRBA

• Existing borrowing arrangements entered into before 10 August 2026 can generally continue

• Existing borrowing arrangements can generally be refinanced without losing their transitional protection

• An acquisition entered into before 10 August 2026 may also be protected, even where settlement or the related borrowing occurs after that date

Business real property generally means land and buildings used wholly and exclusively in one or more businesses. This is a specific legal test, so a property should not be assumed to qualify simply because it is commonly described as commercial property.

The reform does not itself prevent SMSFs from using LRBAs for other eligible assets that are not real property, subject to the existing legislative requirements.

If you are considering an LRBA, get appropriate legal and financial advice before signing a property contract, entering into a loan or changing an existing arrangement.

What is an LRBA?

Super funds are generally prohibited from borrowing money.

An LRBA is a limited exception that allows an SMSF to borrow to acquire an eligible asset.

Under an LRBA:

• The SMSF trustee borrows money to acquire an eligible asset

• The asset is held in a separate holding trust

• The SMSF holds the beneficial interest in the asset

• The SMSF generally has the right to acquire legal ownership once the loan has been repaid

• If the loan defaults, the lender’s rights against the SMSF are generally limited to the asset acquired under the arrangement

Personal guarantees or other security arrangements may create separate obligations for a guarantor.

Historically, LRBAs have been used to acquire residential property, business real property and other eligible investments.

From 10 August 2026, new LRBAs involving real property will generally be limited to property that satisfies the business real property test.

How an LRBA works

An LRBA typically involves three parties.

SMSF trustee

The SMSF trustee makes the investment decision, enters into the borrowing arrangement and manages the investment on behalf of the fund.

Holding trustee

The holding trustee holds legal title to the asset on trust while the borrowing remains outstanding.

The holding trustee is sometimes also called a bare trustee.

Lender

The lender provides the loan.

This may be a commercial lender or a related party. Related-party loans must be carefully structured and documented to comply with the superannuation and tax rules, including the rules relating to arm’s length dealings and non-arm’s length income.

What can borrowed money be used for?

Borrowed money under an LRBA can generally be used to:

• Acquire the eligible asset

• Pay expenses connected with the acquisition or borrowing

• Fund repairs and maintenance to the asset

Borrowed money cannot be used to improve the asset.

Improvements funded using other SMSF money may be possible in some circumstances, but they must not result in the original asset becoming a different asset for LRBA purposes.

Professional advice should be obtained before renovating, redeveloping or substantially changing an asset held under an LRBA.

Before setting up an LRBA

Before borrowing through an SMSF, trustees should:

• Confirm the SMSF trust deed permits the proposed arrangement

• Review and, where necessary, update the fund’s investment strategy

• Confirm the asset is eligible under the rules applying at the time

• Consider the fund’s liquidity and ability to meet loan repayments and other expenses

• Understand the tax and compliance consequences

• Obtain appropriate financial, legal, tax and lending advice

• Establish the correct holding trust and ownership structure before entering into the transaction

The correct sequence and purchaser details can vary depending on the property and jurisdiction. Legal advice should be obtained before signing a contract.

How can Stake Super help?

For an LRBA involving eligible business real property, Stake Super can assist with the establishment and administration steps included in its service, such as:

• Registration of the holding trustee company with ASIC

• Preparation of the holding trust deed

• Preparation of company documents and resolutions

• Investment strategy updates

• Other establishment documents required for the structure

Eligibility will depend on whether the property and proposed arrangement satisfy the applicable legal requirements.

What is not included?

Stake Super does not provide:

• Financial advice

• Legal advice

• Tax advice

• Lending or credit advice

You should obtain advice from appropriately qualified and licensed professionals before entering into an LRBA.

Risks of borrowing through an SMSF

Borrowing through an SMSF is more complex than investing without debt.

Trustees should carefully consider:

• Whether the property satisfies the business real property test

• Interest rate and repayment risk

• The fund’s liquidity

• Property market movements

• The effect of vacancies, repairs and other unexpected expenses

• Ongoing legal, tax and compliance obligations

• The consequences of refinancing or changing the arrangement

• The possibility of future legislative changes

Thinking about buying business real property through your SMSF?

Our team can explain the Stake Super establishment process and the administration involved in setting up an LRBA for eligible business real property.

Speak to a Stake Super specialist or get started online.

LRBA FAQs

This is not financial product advice, nor a recommendation that a self-managed super fund (‘SMSF’) may be suitable for you. Your personal circumstances have not been taken into account. SMSFs have different risks and features compared to traditional superannuation funds regulated by the Australian Prudential Regulation Authority (‘APRA’). Stake SMSF Pty Ltd, trading as Stake Super, is not licensed to provide financial product advice under the Corporations Act. This specifically applies to any financial products which are established if you instruct Stake Super to set up an SMSF. When you sign up to Stake Super, you are contracting with Stake SMSF Pty Ltd who will assist in the establishment and administration of an SMSF under a ‘no advice model’. You will also be referred to Stakeshop Pty Ltd to enable your trading account and bank account to be set up in order to use the Stake Website and/or App. For more information about SMSFs, see our SMSF Risks page.

Ciara Conway

Commercial Manager - Stake Super

Ciara is a Commercial Manager at Stake Super, with over 10 years of experience in the SMSF industry and an MA in Accountancy and Finance from Heriot-Watt University in Edinburgh, United Kingdom. Having previously worked at a chartered accounting firm and one of the largest SMSF administrators in Australia, Ciara has extensive knowledge of SMSF compliance. She is also a current member of the SMSF Association.