LRBA ban data inaccurate

The federal government has underestimated the impact of restricting limited recourse borrowing arrangements (LRBA) for residential property inside an SMSF, while overestimating supposed systemic risks, indicating its policy was based on incomplete data, an industry body has claimed.

The Australian Finance Industry Association (AFIA) stated preliminary data provided by its members showed more than 16,000 new residential SMSF loans were written in the 2026 financial year, which was at least four times greater than the ATO’s average yearly estimate of 4000 new arrangements.

AFIA chief executive Diane Tate pointed out that given the association, which represents banks, finance companies, fintechs and service providers in the finance industry, does not represent the full market, the actual LRBA figure was likely higher.

Tate added the data from members meant the scale of the market, and thus the impact of the ban, was probably not fully recognised when the government agreed to it as part of its negotiations to pass the budget in the Senate.

“This is not a small or marginal segment of the lending market. Our members alone wrote over 16,000 new residential SMSF loans in FY26,” she said.

“The ATO estimate of 4000 per year is based on data that Treasury officials have acknowledged is around three years old.

“The policy was designed around an incomplete picture and supposedly a review conducted well over a decade ago,” she noted, referring to the Financial Services Inquiry of 2014.

She also observed the systemic risk cited in supporting the ban in relation to the average loan-to-value ratio (LVR) was lower in an LRBA at 67 per cent compared to mainstream residential investment lending where it ranges from 70 per cent to 80 per cent.

“At an average LVR of 67 per cent, with substantial member equity contributions and a heavily supervised regulatory structure, the systemic risk argument does not stack up against the evidence,” she stated.

She highlighted AFIA was not calling for a reversal of the government’s policy, but a targeted exemption for new residential dwellings that was consistent with the tax changes for such buildings it introduced in the budget.

“The government has already drawn a principled distinction between new and established residential dwellings in its capital gains tax and negative gearing reforms, preserving full concessions for new dwellings to encourage housing supply,” she said.

“Applying that same logic to SMSF borrowing is internally consistent, uses the government’s own drafting and does not reopen the core policy agreement.

“A significant portion of our members’ SMSF lending is already directed toward new-build residential dwellings. A new dwelling exemption would preserve this private capital contribution to housing supply at exactly the time the government is trying to build more homes.

“Residential property held in an SMSF is rental stock, so this form of property ownership is not only good for supporting new housing, but critical for underpinning the rental market.”