The Good News!

The ATO has now issued a detailed statement on the transitional arrangements applying to the now legislated ban on Residential Limited Recourse Borrowing Arrangements (the Ban).

The Ban applies from 10 August 2026. From that date, new LRBAs where the property to be acquired is real property (aka real estate), then the property must be business real property.

Essentially, the Ban applies to a real property LRBA based upon the date of contract of sale (that is the date of exchange of the contract of sale).

If the contract date is 9 August 2026 or earlier – then the Ban will not apply. Consequently, the real property could be residential or business property. It is irrelevant whether loan approval is acquired before or after 10 August 2026.

If the contract date is 10 August 2026 or later – then the Ban will apply. Consequently, the real property must be business real property.

What is outside the Residential LRBA Ban?

Residential LRBAs which are in place (that is, settled) before 10 August 2026.

Residential property acquired on an ungeared basis – that is, there was no lending involved – whether the date of contract is before or after 10 August 2026.

LRBAs where the property to be acquired is not real property.

How does the Ban apply to off the plan residential LRBAs?

If the contract date is 9 August 2026 or earlier then the Ban will not apply. The fact that the contract settles after 10 August 2026 (or even well after 10 August 2026) is irrelevant.

Also, the fact that loan approval for the contract occurs after 10 August 2026 (or even well after 10 August 2026) is irrelevant.

The ATO accepts that under off the plan purchases it is common for the title details (and even street address) of the unit to be acquired to vary from that set out in the contract. The ATO accepts that such a change will not give rise to a new LRBA with a later contract date.

What has not changed?

The current rules which apply to LRBAs continue to apply. In particular, an SMSF cannot acquire under an LRBA, property that it would be prohibited from acquiring on an ungeared basis. In short, you cannot acquire property from a related party unless the property is business real property.

Does refinancing a pre-Ban LRBA after 10 August 2026 cause the LRBA to be subject to the Ban?

The ATO has confirmed that this is not the case. The identity of the lender is also not relevant. The lender could be the current lender, a new lender or a related party lender.

However, there cannot be an increase in the level of debt – the refinance must be of the existing level of debt.

Are the safe harbour guidelines affected by the Ban?

The guidelines are not affected. For LRBA arrangements affected by the ban, related party lending is still permitted within the safe harbour guidelines.

What is Business Real Property?

This is real property wholly and exclusively used for business purposes – whether one business or two or more businesses. It is irrelevant whether the business is conducted by related or unrelated entities.

How is Primary Production Business Real Property affected by the Ban?

There is no change to the current rules. An SMSF can acquire, on a geared basis, primary production land (whether owned by a related party or not) even if the land has a dwelling used for non-business purposes. However, the dwelling/private use must satisfy the two-hectare limit.

What happens if business real property, but subsequently ceases to be used for business purposes?

This issue is only relevant to LRBAs which are subject to the Ban. That is, the contract date of the LRBA is on or after 10 August 2026.

If the business use ceases before the debt is repaid – then there is a breach of the prohibition against borrowing.

If the business use ceases after the debt is repaid – then there is no borrowing contravention.

What if the cessation of the business use is due to the property being between tenants?

In this case, the property has not ceased to be real property. However, the SMSF must be actively seeking a tenant during this period.

What if the cessation of the business use is due to the property being repaired by the SMSF?

Presumably, the business use of the property has not ceased. Where the property is being fitted out by the tenant then this is presumably business use.

After 10 August 2026, can a vacant business property qualify as business real property?

Unfortunately, the guidance provided by the ATO does not explicitly address this issue.

Presumably, a property which is inherently or obviously capable of business use (a shop or an office unit, factory unit, warehouse) or which can legally be used for business use (residence where zoning permits business use) which is not currently tenanted and therefore there is no current business use, will be treated as business real property.

Equally, where real property is purchased which is currently being used as business real property, where the existing business use will cease on settlement (as the property is purchased on a vacant possession basis), and which is inherently capable of business use or legally permitted for business use, will still be treated as business real property.

After 10 August 2026 if real property is business real property in the hands of the vendor but is not so in the hands of the SMSF, what is the position?