Do you know SMSF Loans Changed for Units?

Using your self-managed super fund to purchase a unit has become more complex since August 2026.

The law now prohibits new residential borrowing arrangements for SMSFs, but commercial units remain a viable option under the Limited Recourse Borrowing Arrangement rules. Understanding which type of property your fund can borrow for, and how the holding trust structure protects both your retirement savings and the lender, determines whether your strategy can proceed. For members in Gregory Hills considering a unit purchase through their SMSF, the distinction between residential and commercial property has never mattered more.

What Changed for SMSF Residential Unit Purchases in August 2026

New residential borrowing arrangements through an SMSF are no longer permitted from 10 August 2026. The Treasury Laws Amendment (Tax Reform No. 1) Act 2026 restricted Limited Recourse Borrowing Arrangements to business real property only for arrangements entered into on or after that date. This applies regardless of whether the lender is a bank, non-bank lender, or related party.

Consider a member who exchanged contracts on a residential unit in Oran Park on 5 August 2026 but settled in September. The changes do not apply where an SMSF exchanges a binding contract to acquire real property before 10 August 2026, even if the contract is settled or the LRBA is entered into on or after that date. That member's arrangement proceeds under the previous rules. Another member who began searching in July but didn't exchange until mid-August cannot borrow to acquire a residential unit under an LRBA.

The restriction does not prohibit SMSFs from owning or acquiring residential property. Your fund can still purchase a residential unit without borrowing, subject to the usual prohibition on acquiring property from a related party and the requirement that no member or related party can occupy it.

Why Commercial Units Remain a Borrowing Option

LRBAs for commercial property that satisfies the definition of business real property are not affected by the changes commencing 10 August 2026. Business real property means land and buildings used wholly and exclusively in one or more businesses. The business using the property does not need to be carried on by the entity holding the interest.

A commercial unit in the Gregory Hills Town Centre leased to an accounting practice or medical tenant would typically qualify. Whether a property satisfies the definition depends on its actual use at the time of acquisition and is a question of fact. A property marketed as commercial does not automatically satisfy the definition if the actual use differs. An SMSF specialist and your SMSF mortgage broker should review the lease terms and tenant use before your fund commits to a purchase.

How the Limited Recourse Borrowing Arrangement Protects Your Fund

Under an LRBA, the asset is held in a separate holding trust, the SMSF acquires a beneficial interest in the asset, and obtains legal ownership after the loan is repaid. If the loan defaults, only the asset held in trust is at risk.

In a scenario where an SMSF borrowed to acquire a commercial unit and the tenant vacated unexpectedly, leaving the fund unable to meet loan repayments, the lender's recourse is limited to the unit held in the bare trust. The lender cannot pursue other assets within the SMSF, such as shares or cash, and cannot claim against the members personally unless a personal guarantee was provided separately. Investment returns from the asset flow to the SMSF. Rental income is received by the trustee and contributes to the fund's accumulation or pension phase earnings.

The holding trust must give your SMSF trustee a beneficial interest in the asset and the right to acquire legal ownership after making one or more payments. A discretionary trust cannot be used. The structure is typically a bare trust in which the SMSF trustee holds all beneficial interest and the legal title transfers once the loan is repaid.

Loan Deposit Requirements and Borrowing Capacity

The borrowed money must be used to acquire a single asset, or a collection of identical assets with the same market value that can be treated as a single asset. Loan establishment costs and stamp duty may also be covered. Borrowed funds cannot be used to improve an existing asset, and the asset cannot be subject to any charge other than under the LRBA.

Most SMSF lenders require a deposit between 20 and 30 percent of the purchase price for commercial units, depending on the property's location, lease strength, and tenant covenant. Your fund's existing balance, recent contributions, and the trustees' capacity to make further contributions if needed all influence how lenders assess the application. Members approaching retirement may have limited capacity to contribute further, which reduces the fund's ability to service the loan if rental income is disrupted.

Unlike a standard investment loan, lenders assess the fund's financial position rather than the members' personal income. Rental income from the unit, combined with any other fund income such as dividends or distributions, must cover loan repayments and fund expenses. The fund's cash flow, not your salary, determines borrowing capacity.

Tax Treatment of Rental Income and Capital Gains

A complying SMSF is taxed at a concessional rate of 15 percent on its assessable income, including net capital gains. Rental income from a commercial unit held in accumulation phase is taxed at 15 percent. Where an eligible asset has been held for at least 12 months, a one-third CGT discount may apply, which can produce a maximum effective rate of 10 percent on the discounted gain.

The actual tax liability on a capital gain varies depending on the property's adjusted cost base, acquisition and selling costs, capital improvements, capital works deductions, capital losses, and the fund's overall tax position for that year. Capital losses can only be offset against capital gains, not against rental income or other fund income.

Where the fund has entered pension phase and the unit is supporting a retirement income stream, different rules apply. Where a fund's assets are fully segregated as current pension assets at all times during the income year, a capital gain on disposal of those assets is disregarded. The exemption is not automatic and depends on whether the fund uses the segregated or proportionate method, whether minimum pension payments have been met, and whether an actuarial certificate is required.

Refinancing an Existing SMSF Loan After the August 2026 Changes

The changes commencing 10 August 2026 do not impact the refinancing of arrangements existing prior to that date. Trustees with compliant residential LRBAs in place before 10 August can refinance to another lender without the refinanced arrangement being subject to the post-commencement rules.

The ATO considers refinancing an LRBA to mean entering into a new loan contract for the same asset, with the same or a new lender. The refinanced loan must relate to the same single asset, maintain the limited recourse character of the original arrangement, and meet arm's length terms. The ATO publishes safe harbour interest rates annually under Practical Compliance Guideline PCG 2016/5. Income from an arrangement that does not meet arm's length terms may be taxed at 45 percent as non-arm's length income.

A significant change to the terms or conditions of an LRBA may end the existing arrangement and trigger a new one. Refinancing that is inconsistent with the original arrangement, borrowing to acquire an asset not contemplated under the original arrangement, or changes to the ultimate beneficiaries can all end an existing arrangement. If a new arrangement is deemed to have begun on or after 10 August 2026 and involves residential property, it cannot proceed under LRBA rules.

How Division 296 Tax Affects High-Balance Members

From 1 July 2026, where a member's total superannuation balance at the end of the financial year exceeds $3 million, Division 296 tax of 15 percent applies to the proportion of earnings attributable to the amount above that threshold. Where the balance exceeds $10 million, an additional 10 percent Division 296 tax applies to the proportion of earnings above that threshold.

Division 296 fund earnings for an SMSF are based on an adjusted amount of the fund's taxable income. A capital gain must be realised through a sale or other CGT event to form part of assessable income and the Division 296 earnings base. An unrealised increase in the unit's value does not by itself produce assessable income or Division 296 fund earnings. Rental income and realised capital gains may contribute to the calculation.

LRBA amounts are disregarded when calculating a member's total superannuation balance for Division 296 tax purposes. If your fund borrowed to acquire a commercial unit, the outstanding loan reduces the asset's value for balance calculation purposes. An SMSF may elect to adjust the cost base of its CGT assets to market value as at 30 June 2026 for Division 296 fund earnings purposes, recognising accrued value prior to the commencement of Division 296 tax. This election applies to all CGT assets held directly by the SMSF at that date, cannot be revoked, and must be made by the due date of the 2026-27 SMSF annual return.

Leasing a Commercial Unit to Your Own Business

Business real property leased between the fund and a related party of the fund is excluded from the in-house asset rules. Your SMSF can purchase a commercial unit and lease it to a business you own or control, provided the lease is made on arm's length terms at market value.

A member operating a physiotherapy practice in Gregory Hills could structure their SMSF to purchase a commercial unit in the town centre and lease it back to the practice. The rent must reflect what an independent tenant would pay for comparable premises in the area. The lease terms, including rent reviews, outgoings, and lease duration, must be commercially reasonable. A below-market rent may trigger non-arm's length income treatment, taxing the fund's income from that arrangement at 45 percent rather than 15 percent.

All SMSF investments must satisfy the sole purpose test under section 62 of the SIS Act, meaning the fund is maintained solely to provide retirement benefits to members. A lease that gives the member or their business a present-day benefit through below-market rent may contravene this requirement. Professional advice from an SMSF specialist and a property valuer is necessary before entering this type of arrangement.

Purchasing a unit through your self-managed super fund requires careful structuring, particularly since the August 2026 changes. Whether you're considering a commercial unit in Gregory Hills or refinancing an existing residential arrangement, the legislative framework, tax treatment, and lender requirements all shape what's possible. Call one of our team or book an appointment at a time that works for you.

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