ATO explains LRBA guidance ahead of 10 August start

“SMSFs can still borrow or maintain a borrowing under an LRBA to acquire an asset. However, the changes restrict real property assets to business real property,” the ATO said.

“The changes apply where the arrangement is an LRBA, regardless of whether the lender is a bank, non-bank lender or related party. The identity of the lender does not determine whether the real property must be business real property.”

However, the ATO stressed that the changes do not apply if an SMSF entered into an LRBA to finance a real property acquisition before 10 August 2026 or maintains or refinances that LRBA on or after 10 August 2026.

“This means that if the acquisition contract is for real property, it does not need to be business real property [and] that if the asset already financed under the LRBA is real property, it does not need to be business real property.”

“If the residential real property meets the definition of business real property, these can be acquired and financed under an LRBA. The residential real property will need to be business real property at the time the LRBA is entered into and throughout the life of the LRBA.”

“The real property asset must continue to be business real property for the entire life of the LRBA. This means the asset must be wholly and exclusively used in one or more businesses for the duration of the LRBA.”

The Tax Office noted that if the asset does not meet these rules, the SMSF would have breached the law against borrowing, and compliance action may be taken.

“Alternatively, an SMSF can still invest in residential real property that is not business real property (provided it meets all other regulatory rules), but it can't be financed under an LRBA,” it added.

“We consider refinancing an LRBA to mean entering into a new loan contract for the same asset, with the same or a new lender.”

“In general, later variations of the contract will not change this. However, if a contract is changed significantly and the fundamental terms no longer exist, it may be considered that a new arrangement has begun.”

Finally, the ATO noted that a property will not cease to be business real property if the owner is seeking a new tenant for commercial premises, but will do so if the owner abandons plans to lease the property.