What is LRBA? What has changed from 10th August 2026?
LRBA-Lender’s ability to claim assets in SMSF borrowing
SMSFs can invest retirement money in certain assets, such as shares, bonds, managed funds, and property, subject to rules.
Consider a person X with an SMSF worth $500,000 who wants to invest in a residential property worth $1,000,000.
So, the borrower X buys the property by taking an additional loan of $500,000.
But if the borrower defaults on the payment, the lender’s right to claim is limited to the property purchased, not to other assets the SMSF has invested in.
This mechanism is called an LRBA, or Limited Recourse Borrowing Arrangement.
After 10th August, are these LRBA rules the same?
No,
The ATO has changed the LRBA rules to allow any LRBA arrangement made on 10th August 2026, or after that, to be used to acquire business real property (properties mainly used for business).
To be more specific about the rules, the ATO has mentioned that,
- LRBA’s are not banned.
- The LRBA rules apply to all lenders, whether they are banks, non-bank lenders or related parties.
- The business real property can be land or a building solely used for business, and it can also be a dwelling for private or domestic purposes on an area of land not more than 2 hectares.
- The changes do not apply if an SMSF has already entered into an LRBA to finance a residential real property acquisition before August 10th, 2026.
- Also, it doesn’t affect the refinancing of that LRBA on or after 10th August 2026.
- The assets invested through LRBA should continue to remain as business real property for the entire life of LRBA, and if this rule is breached, then compliance action will be taken by the ATO.
- This rule doesn’t stop SMSFs from investing in real property, but they can’t be financed through LRBA.
Why did the ATO make this change?
SMSFs are meant for retirement; these rules stop people from using their SMSFs to buy personal benefits.
But if invested in business property, the SMSF can earn rental income or other business income, which adds value to the retirement savings.
With regulations evolving day by day in the SMSF space, accountants now need to identify whether their clients fall under the new rules, review existing LRBAs, maintain documents such as loan agreements and transaction-related documents properly, and check whether these changes can affect the client’s tax return, investment records, and audit documentation.
An SMSF gives Australians greater control over their retirement savings, but that control comes with significant accounting, administration and evolving compliance responsibilities, which is where specialist back-office support can help.
