In this edition of It Depends, private client partner Scott Hay-Bartlem explains the SMSF borrowing ban for residential real estate introduced in the 2026 federal Budget.
Effective from 10 August 2026, SMSFs can only borrow to buy property classified as ‘business real property’ – meaning the property must be used wholly and exclusively for carrying on a business.
While existing borrowing arrangements are exempt, they are subject to strict conditions and cutoff dates. It is essential to understand these rules before proceeding with any SMSF property purchase involving borrowing.
Video transcript:
Welcome to this edition of It Depends where I talk about, am I affected by the ban on SMSFs borrowing to buy residential real estate?
Where did this all come from?
Okay, so this has a bit of a history. The May 2026 federal Budget, the government announced a whole lot of really important changes to tax rules, including the new CGT changes and bans on negative gearing.
As a compromise to get those rules through parliament, the government agreed to a Green requirement that we ban borrowing in SMSFs to buy residential real estate and that’s what we’re facing at the moment.
So, can I still buy residential real estate in my SMSF?
So, this is the big it depends in this particular It Depends. So, there’s a whole lot of things we need to be aware of.
So, first of all, it doesn’t create an absolute ban on buying real estate or residential real estate in your SMSF. The new rules only apply if you’re borrowing to buy residential real estate in SMSFs.
Now, there’s been a lot about the ban on ‘residential real estate’, but the rules actually don’t say that. The rules say that an SMSF can only borrow to buy real estate if the real estate is ‘business real property’.
Now the ‘business real property’ concept has been in the super laws for many, many, many years and it means real estate that is used wholly and exclusively in carrying on a business. So, this means if you’re going to borrow to buy real estate in an SMSF, we have to make sure the real estate is at the time you buy it ‘wholly and exclusively’ used in carrying on a business.
So, some residential properties are actually used wholly exclusively in carrying on a business. Tick. A commercial property which is vacant at the time you buy it may not be business real property. Part commercial, part residential probably won’t be. And if you’re buying residential real estate to convert to use in a different commercial purpose, it probably isn’t business real property.
So, you have to be very careful when looking at buying real estate in your SMSF to make sure it’s not residential, but it’s ‘business real property’.
When do the new rules apply from?
So, the new rules are actually in. So, the law has been passed. It’s now an act. And it received royal assent on 26 June 2026 . We have days from royal assent as a window, and that expires on 10 August 2026 . So, the new rules are effective from 10 August 2026.
Are existing arrangements affected?
So, existing arrangements are actually carved out. Now the carve outs are going to relate to an existing borrowing, a refinance of an existing borrowing. But, there’s limits on what a refinance is going to be. Or, a purchase under an arrangement that existed before the cutoff date.
So, it’s not an immediate effect. You have to be very, very careful if you’re going to go ahead with a residential real estate purchase with borrowings in your SMSF to watch the cutoff dates and make sure you’re going to comply with those new rules.
Now, there’s a lot in all of this. We’ll do some more information, we’ll do some podcasts, things like that. That’s a very brief summary of the rules.
So, if you have any more questions, contact a member of our team and we can talk to you about it more. Have a look out for those podcasts and other things coming up. Thanks for watching this edition of It Depends.
