Super funds are generally banned from borrowing. The main exception is the limited recourse borrowing arrangement, a tightly defined structure that lets a self managed super fund borrow to acquire a single asset. Every SMSF property loan is built on it. The lender, the trust and the contract all have to fit the structure, and the ATO and the fund's auditor check that they do.
The rules narrowed this year. From 10 August 2026, an SMSF can only use an LRBA to acquire real property if it is business real property. A fund can no longer take out a new loan to buy a house, unit or other residential property. Earlier LRBAs, refinancing of those LRBAs, and binding contracts exchanged before that date are not affected.
What limited recourse means and how the structure fits together
Limited recourse means the lender's rights on default stop at the asset bought with the loan. If the fund cannot pay, the lender can take and sell that property. It cannot pursue the fund's shares, cash or other properties. That limit is why the law allows the borrowing at all, and why lenders price and assess these loans conservatively.
| Party | Role in the arrangement |
|---|---|
| SMSF trustee | Borrows, pays the deposit, receives the rent, makes the repayments and holds the beneficial interest |
| Holding trustee (bare trustee) | A separate trustee, usually a company with no other activity, that holds legal title on trust for the fund |
| Lender | Lends to the SMSF trustee and takes a mortgage over the single property, with recourse limited to it |
| Members | Commonly give personal guarantees and keep contributing to the fund |
The fund has the right to take legal title from the holding trustee once the loan is repaid.
The holding trust has to be simple. The ATO's position is that the fund trustee must hold the beneficial interest and have the right to acquire legal ownership by making one or more payments. Discretionary trusts, or unit trusts with several unit holders, are unlikely to qualify. The LRBA requirements checklist in our help centre lists what the fund needs before it can borrow.
New SMSF property loans are for business real property only
For LRBAs entered into on or after 10 August 2026, the real property must be business real property. In general terms, that means land and buildings used wholly and exclusively in one or more businesses, such as offices, warehouses, shops, factories, medical rooms and farm land. A fund can still lease business real property to a related party at market rent.
- Not affected: an LRBA entered into before 10 August 2026.
- Not affected: refinancing an LRBA entered into before 10 August 2026, including one over residential property.
- Not affected: a binding contract exchanged before 10 August 2026, even if settlement or the LRBA happens after that date.
- Still allowed: buying residential property with the fund's own cash, subject to the usual SMSF rules.
A loan application or pre-approval before 10 August 2026 is not the same thing as an exchanged contract. If your position depends on contract timing, particularly off the plan, get licensed SMSF advice. The same applies to mixed use property, a shop with a dwelling, or farm land with a house. Whether these qualify depends on the facts, and the question has to be answered before a contract is signed.
For most trustees the practical result is simple. If the fund needs a loan, look at SMSF commercial property loans. If the fund wants residential property, it buys with cash and no borrowing, as our SMSF residential property page explains.
The single acquirable asset rule, repairs and improvements
Each LRBA can fund one asset, called a single acquirable asset. One property on one title is the simple case. Two titles are generally two assets needing two arrangements, unless something such as a building across both titles means they can only be dealt with together. Check this before exchange if the property has a separate car space title or sits on more than one lot.
The rule also limits what you can do while the loan is in place. Borrowed money can be used to acquire the property and to repair or maintain it, but not to improve it. The fund's own cash can pay for improvements, provided the work does not turn the property into a different asset. The ATO's ruling on this area is SMSFR 2012/1.
| Work on the property | Borrowed money | Fund's own cash |
|---|---|---|
| Repairs, such as fixing a damaged roof | Yes | Yes |
| Maintenance, such as repainting | Yes | Yes |
| Improvements, such as an extension | No | Yes, if it stays the same asset |
| Changes that create a different asset, such as subdividing | No | No, not while the loan is in place |
General examples only. Get advice before significant work on a property held under an LRBA.
Typical lender terms for SMSF commercial property loans
Fewer lenders offer SMSF loans than standard loans, and non-bank lenders and specialist lenders write much of the market. Policies differ widely and change often. The figures below are common ranges, not rules, and each lender applies its own policy.
| Term | What is common |
|---|---|
| Loan to value ratio | 60% to 70% for standard commercial property, lower for specialised assets |
| Loan term | Commonly 15 to 25 years, sometimes up to 30 |
| Repayments | Principal and interest, with limited interest only options |
| Fund balance | Commonly $200,000 to $250,000 or more |
| Liquidity after settlement | A buffer of cash or listed investments, set by each lender |
| Trustees | A corporate trustee for the fund and a company as holding trustee |
| Guarantees | Personal guarantees from members are commonly required |
| Rate and fees | Higher than comparable standard loans, plus lender legal fees |
Indicative only. Each lender sets its own policy and can change it.
A personal guarantee changes the risk for you, not the fund. The fund's other assets stay protected, but a guarantee can expose your personal assets if the property sells for less than the debt. Get independent legal advice on it. Our help centre explains why SMSF loan interest rates are higher and what deposit a fund needs.
How lenders assess servicing: rent plus contributions
The fund repays the loan, so the lender assesses the fund's income, not your household budget. Two sources count: rent and super contributions. Lenders usually shade both. Rent is often discounted for vacancies and costs. Contributions are checked against payslips, business financials and the fund's history, and often counted after the 15% contributions tax. Repayments are then tested at an assessment rate above the actual rate.
Worked example: a $900,000 office
A fund buys a $900,000 office at a 65% loan to value ratio. The loan is $585,000 and the deposit is $315,000, plus stamp duty and costs. At an illustrative 7.5% over 15 years, principal and interest repayments are about $5,423 a month, or $65,076 a year. Market rent is $54,000 and the two members' combined concessional contributions are $55,000.
| Servicing item (illustrative) | Amount per year |
|---|---|
| Rent counted at 80% of $54,000 | $43,200 |
| Contributions of $55,000 less 15% tax | $46,750 |
| Income the lender accepts | $89,950 |
| Repayments at the actual 7.5% rate | $65,076 |
| Repayments at a 9.5% assessment rate | $73,305 |
| Cover at the assessment rate | About 1.23 times |
Shading, assessment rates and minimum cover differ between lenders. These figures are illustrative.
Where the tenant is your own business, the lender usually wants the lease, evidence the rent is at market, and the business financials, because the business funds both the rent and the contributions. Model repayments with the SMSF loan calculator.
What happens when the loan is repaid
Once the final payment is made, the lender discharges its mortgage and the holding trustee can transfer legal title to the SMSF trustee. The transfer is not compulsory, but it lets the holding trust and its company be closed. For capital gains tax the fund is generally treated as the owner all along, so the transfer does not usually trigger a gain.
Stamp duty on that transfer depends on the state. Most states charge nominal or concessional duty if the arrangement was set up correctly, which usually means showing the fund paid the whole price, including the deposit. Keep the contract, trust deed and bank statements for the life of the loan. With the loan gone, the single acquirable asset limits on improving or redeveloping fall away, though the general SMSF rules still apply. See our SMSF rules and compliance page and the guide to buying property with an SMSF.
Common mistakes with SMSF property loans
Almost every serious LRBA problem is created in the fortnight around exchange of contracts.
Signing the contract in the wrong name
The buyer under an LRBA is the holding trustee. A contract signed by a member personally, or by the fund trustee, does not match the structure the lender and the law require. Fixing it can mean a second round of stamp duty or a lost purchase.
Give the selling agent the exact holding trustee name in writing before the contract is prepared.
Setting up the holding trust after exchange
Trustees who buy at auction or sign quickly often try to create the holding trust afterwards. Depending on the state, that can cause duty problems and leave the lender unable to accept the documents. Buying "and/or nominee" is not a reliable fix.
Have the holding trust and trustee company ready before you bid or sign, and confirm the document order with your solicitor.
Paying the deposit from a personal account
The deposit and all purchase costs must come from the fund's bank account. A deposit paid personally looks like a contribution, a loan or a personal purchase, and it can undermine the duty concession when title is transferred later.
Move money into the fund as a properly recorded contribution first, then pay from the fund.
Using loan money for improvements
Drawing on the loan to extend or upgrade the property breaches the borrowing rules, even if the lender would allow the drawdown. Work that changes the property into a different asset is a problem whatever money is used.
Separate repairs from improvements in every quote and ask your SMSF adviser before starting work.
