The federal government has moved to ban self-managed super funds from borrowing to buy residential property. If you run an SMSF, or you’ve been weighing one up, this one is worth understanding properly.
The change landed this week. As reported by the Australian Financial Review and ABC News, the government agreed to close the so-called borrowing “loophole” as the price of securing the Greens’ support to pass its tax changes through the Senate. Before the headlines think for you, here’s what has changed, what hasn’t, and why it matters.
The borrowing in question happens through a limited recourse borrowing arrangement, or LRBA. In plain terms, it’s the one way super law currently lets an SMSF borrow to invest. Super funds are broadly prevented from borrowing at all, but in 2011 self-managed funds were given an exemption to do so when buying a single asset. “Limited recourse” means that if the fund can’t repay, the lender can take the property the loan paid for, but not the fund’s other assets.
Under the announced change, new LRBAs used to buy residential property will be banned. Here’s the part that gets lost in the noise: this is a ban on borrowing, not on property. Your SMSF can still invest in residential property. It just won’t be able to take out a loan to do it.
The ban is prospective. The government has said it takes effect 45 days after the amendments are signed into law, existing arrangements won’t be affected, and contracts signed before the start date are also protected. To put the scale in context, the government says SMSFs account for less than 1 per cent of total residential property borrowing, and under half a per cent of new borrowing each year.
A note of caution: while the tax bill is expected to pass the Senate this week, it had not received assent at the time of writing. The detail can shift between announcement and law, so treat this as the current state of play rather than the final word.
The reasoning isn’t new. Concerns about SMSF borrowing have been raised for more than a decade. The 2014 Murray Financial System Inquiry flagged it, and a 2022 review by the Council of Financial Regulators recommended closing the door.
The worry is concentration risk. A fund with a modest balance, most of it tied up in a single geared property and sometimes backed by personal guarantees, is exposed if that one asset falls. The whole retirement plan can go with it.
Not everyone agrees. The SMSF Association called the move a departure from nearly two decades of settled policy and pointed to reviews finding LRBAs posed nomaterial risk. Advisers have noted there were legitimate uses, too, for people whose main asset sits inside super. There are reasonable arguments on bothsides, and that’s rather the point.
Headlines breed panic, so it’s worth being clear about what stays the same.
Super’s tax arrangements are not changing. Existing SMSF borrowing arrangements are not affected. SMSFs remain outside the budget’s broader changes to the capital gains tax discount. The usual super tax settings still apply, including the concessional tax rate on investment earnings within super and the tax-free treatment of a fund in pension phase for members over 60.
In other words, the change is narrow. It closes one specific door. It does not touch the core reasons people use super in the first place.
This is the part I keep coming back to with clients in Sydney. An SMSF gives you control, and a lot of people want exactly that. But control means you carry the rules,and the rules keep moving. This is simply the latest change in a long run of them.
Every one of these shifts rewards the people who are paying attention and catches out the ones who aren’t. You don’t need to predict the next change. You need a structure that gets reviewed often enough to absorb it when it comes. That, more than anything, is what good advice is for.
An SMSF can still be the right direction for the right person. It can also be the wrong one. Whether it suits you depends entirely on your circumstances, which is exactly the kind of question worth talking through before you act.
If this change affects your fund, or you’re trying to work out whether an SMSF is right for you, now is a sensible time for a conversation. Our team provides self-managed super fund advice alongside broader wealth management for people across Sydney.
No pressure, no sales pitch. Just a clear read on where you stand.