Can my SMSF borrow money? LRBAs explained

As a general rule, super funds are not allowed to borrow money. But there is an important exception that lets an SMSF borrow to buy an investment, most commonly property. It is called a limited recourse borrowing arrangement, often shortened to LRBA. This article explains what it is and the rules around it.

An important change: new residential property borrowing is being banned

Before going further, there is a significant change you need to know about. In June 2026 the government agreed to ban new borrowing to buy residential property inside an SMSF. The change passed the Senate on 25 June 2026 and is expected to start around the middle of August 2026, which is 45 days after it formally becomes law.

From that start date, your fund will not be able to take out a new loan to buy a residential property. A few important points sit alongside that:

Business property is not affected. A fund can still borrow to buy genuine business premises, such as the property a business operates from.

Existing loans are protected. If your fund already has one of these arrangements, nothing changes, and it stays protected even if you refinance it.

Contracts signed before the start date are protected. If your fund signs a contract to buy a residential property before the ban starts, that purchase can still go ahead even if it settles later.

Buying without borrowing is still allowed. Your fund can still buy a residential property outright, using its own money, without a loan.

Because the exact start date depends on when the change receives its final formal sign-off, check the current position before acting. The rest of this article explains how these borrowing arrangements work, which remains relevant for existing arrangements and for business property.

The general rule, and the exception

The starting point is that your fund cannot borrow. The exception allows the fund to borrow to buy a single asset, under a tightly controlled structure. The word that makes it work is limited recourse. It means that if the fund cannot repay the loan, the lender can only take the particular asset the loan was used to buy. The lender cannot come after the fund’s other assets. This protects the rest of your retirement savings from the borrowing.

How the structure works

Because of the limited recourse requirement, the asset cannot simply be owned by the fund in the normal way while the loan is outstanding. Instead, the asset is held in a separate holding trust, sometimes called a bare trust, on behalf of the fund. The fund makes the loan repayments and is entitled to the asset, and once the loan is paid off the asset can be transferred into the fund directly. This structure has to be set up correctly before the purchase, and getting it wrong is difficult and expensive to fix.

One single asset

The borrowing must be for a single asset, or a collection of identical assets with the same value, such as a parcel of the same shares. You cannot use one loan to buy several different properties or a mix of assets. You also need to be careful with property: you can repair and maintain it using the fund’s money, but you cannot make changes that turn it into a fundamentally different asset while the loan is in place.

Borrowing from a bank versus from yourself

A fund can borrow from a bank, or in some cases from a related party, such as a member or a family company. If you borrow from a related party, there is an important catch: the loan has to be on genuine commercial terms, as if it were from a bank. The authorities publish a set of terms, covering things like the interest rate, the loan period and how much can be borrowed against the asset, that they will accept as commercial.

If a related-party loan is on terms that are too favourable to the fund, for example no interest or an unrealistically long period, the income from the asset can be taxed at the top tax rate instead of the low super rate. That is a severe penalty, so related-party loans need to be set up carefully and kept on proper terms.

It is complex, so get advice

Borrowing in super is one of the more complex things an SMSF can do. The structure must be right from the start, the loan terms must be correct, and there are ongoing obligations. Mistakes can be costly and hard to unwind. If your fund is thinking about borrowing, the sensible step is to get advice from a licensed professional before you commit to anything.

The bottom line

Your SMSF generally cannot borrow, but a limited recourse borrowing arrangement lets it borrow to buy a single asset, with the lender limited to that asset if things go wrong. From around the middle of August 2026, new borrowing to buy residential property is being banned, though business property is unaffected and existing arrangements are protected. The asset is held in a separate holding trust, the borrowing must be for one asset, and any loan from a related party must be on genuine commercial terms or the income can be taxed at the top rate. It is complex, so get advice before going ahead.

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This article is general information for trustees and members. It is not financial, legal or tax advice about your particular situation. Borrowing in super is complex, so get advice from a licensed professional before acting.