Residential LRBAs – Shock Announcement & Immodest Haste

With little policy justification (other than a political trade off and a vague reference to concerns that residential Limited Recourse Borrowing Arrangements (LRBAs) raise risks for superannuation investors) the Government has announced (by Press Release dated 23 June 2026) that it will support a Green’s proposal to ban future LRBAs where the asset is residential real estate – “residential LRBAs”.

With Immodest Haste the announced ban was included in Bill form on the 25 June 2026 and enacted on the 26 June 2026 as Schedule 5 of the legislation which introduced the new Division 296 (Treasury Laws Amendment (Tax Reform No 1) Act 2026).

What is the change?

Where the asset of the LRBAs is real property then the asset must be business real property.

What is the start date for the change?

The start date is 10 August 2026.

What about existing LRBAs?

Existing LRBAs are unaffected by the change. Consequently, existing residential LRBAs can continue after 10 August 2026.

What about LRBAs which are currently in the process of being established?

If the LRBA is a residential LRBA and settlement occurs before 10 August 2026, then the LRBA will not be affected by the change. However, if settlement occurs on or after 10 August 2026, the LRBA may be caught by the change. It will depend on when an LRBA is “entered into”. It could be when exchange occurs, when finance is approved or when settlement occurs. It is likely that the ATO will issue guidance on this issue. The most prudent course would, in the absence of ATO guidance, treat settlement as the date on which the LRBA is “entered into”.

Can pre 10 August 2026 Residential LRBAs be refinanced after 10 August 2026?

Most likely as the refinancing does not “terminate” an existing LRBA and does not create a new LRBA.

Why?

The Press Release indicates residential LRBAs constitute less than 1% of residential property borrowing and less than ½ per cent of new residential borrowing each year. This level of activity cannot distort the residential property market.