The ATO has released guidance on the use of limited recourse borrowing arrangements (LRBA) for residential property inside an SMSF before and after a ban begins on 10 August, confirming those assets will still be acquirable after that date under specific circumstances.
The regulator released the information on its website today and reaffirmed LRBAs entered into on or after 10 August could only be used to acquire business real property (BRP) and there were no other changes related to LRBAs or borrowings by an SMSF.
It also stressed the source of any borrowings would not play any role in determining the nature of a property.
“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 BRP,” the guidance stated.
In the lead-up to 10 August, the ATO also reiterated the ban would not apply to existing arrangements or those that were put in place before that date, as well as limited changes that may occur afterwards.
“The changes do not apply if an SMSF has already entered into an LRBA to finance a real property acquisition before 10 August 2026 and maintains or refinances that LRBA on or after 10 August 2026. This means that if the asset already financed under the LRBA is real property, it does not need to be BRP,” it said.
“The changes do not apply if an SMSF exchanges a binding contract to acquire real property before 10 August 2026. This applies even if the contract is settled or the LRBA is entered into on or after 10 August 2026. This means that if the acquisition contract is for real property, it does not need to be BRP.
“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.”
In separating residential real property from BRP, the guidance pointed out the latter generally meant land and buildings used wholly and exclusively in a business, but there were exceptions for where a primary production business contained a dwelling for private or domestic purposes.
In those cases, the property could still meet the requirements of being used wholly and exclusively in a business, and considered BRP, if any dwelling used for private or domestic purposes was in an area of land no more than two hectares and the main use of the whole property was not for domestic or private purposes.
Additionally, residential real property could be considered BRP in some circumstances and acquirable under an LRBA.
“If the residential real property meets the definition of BRP, these can be acquired and financed under an LRBA. The residential real property will need to be BRP at the time the LRBA is entered into and throughout the life of the LRBA,” the guidance added.
Jason Spits
SENIOR JOURNALIST
Jason is a senior journalist with Benchmark Media and writes for the selfmanagedsuper website and magazine and smstrusteenews website. He has covered financial services since 1999 and has written about life insurance, superannuation, investment management and financial advice, in both a freelance and in-house capacity, and also did a brief stint as a media manager for an industry association. He has been the editor of trade titles Money Management and Financial Standard, and was most recently senior journalist with life insurance title Riskinfo.
Articles by Jason