The Albanese government has agreed to ban new limited recourse borrowing arrangements (LRBAs) for residential property inside superannuation funds. The ban commences 45 days after royal assent. Existing arrangements are untouched. In-progress arrangements may qualify under the transition provisions. New residential LRBAs after commencement are prohibited. Note: this article is based on the bill as introduced and government announcements. The Act has not yet received royal assent. Final legislative detail may differ. Do not rely on specific dates or transition requirements until the Act is published and the commencement date confirmed. 

What The Legislation Does 

Schedule 5 of the bill amends section 67A of the Superannuation Industry (Supervision) Act 1993. The LRBA exception — which permits super funds to borrow by way of limited recourse arrangements — is amended to exclude residential real property. For real property to remain eligible, it must be business real property within the meaning of section 66. Residential property no longer qualifies. 

Three categories remain protected under the transition provisions in item 2 of Schedule 5: 

• Pre-commencement borrowing arrangements. Existing LRBAs are unaffected. The arrangement continues to be covered regardless of when loan repayment occurs. 

• Refinancing arrangements. A new borrowing entered into after commencement for the purpose of maintaining or refinancing a pre-commencement borrowing remains covered. Refinancing an existing residential LRBA will still be possible. 

• Acquisitions under a pre-commencement arrangement. Where the asset acquisition relates to an arrangement entered into before commencement, the borrowing remains protected — even if settlement occurs after commencement. The Note to item 2 confirms this expressly. A signed contract of sale dated before the commencement date should be sufficient to preserve the exception, regardless of settlement timing. 

The contract date — not settlement date, and not the date the full LRBA structure is established — appears to be the relevant threshold for the acquisition limb. However, the borrowing arrangement itself is a separate question. Legal advice should be obtained for any specific arrangement. 

Why LRBAs Were Targeted 

The ban reflects long-running regulatory concern. Super funds are generally prohibited from borrowing to invest; LRBAs were the exception, used almost exclusively by SMSFs. The 2014 Murray Financial System Inquiry flagged the risks of leveraged property inside retirement vehicles. The Council of Financial Regulators raised the same concerns in 2019 and 2022. The affected segment is modest — less than 1 per cent of residential property borrowing runs through SMSFs — and the measure is estimated to improve the budget by $50 million. 

The LRBA ban was also the political price for Senate passage of the broader investor tax package, which abolished the 50 per cent CGT discount for investments (replacing it with inflation-adjusted real gain taxation) and tightened negative gearing for future investment properties, with existing arrangements grandfathered. A second technical bill covering trust-related detail is due later in the year. 

For SMSF Trustees 

• Existing residential LRBA in place. Nothing changes. You can continue to hold the property, service the loan, and the concessional tax treatment remains — including the effective 10 per cent rate on realised gains and zero rate for retirees over 60 in pension phase. No requirement to unwind, refinance, or restructure. 

• Partway through establishing a residential LRBA. Act now. The ban takes effect 45 days after royal assent. The bill confirms that a pre-commencement purchase arrangement (including post-commencement settlement) should be protected — but the borrowing arrangement itself is a separate question. Document everything and take legal advice on the interaction between your contract date and loan documentation. 

• Planned a residential LRBA but haven’t started. That strategy is closing. Consider an ungeared purchase, a different asset class, or holding outside super. These are advice questions — work through them with a licensed adviser. 

The broader reform context is also shifting. The LRBA ban runs alongside the abolition of the 50 per cent CGT discount and tightened negative gearing rules, so the overall economics of geared property — inside and outside super — are changing at the same time. 

Compliance Breaches and The Restructure Trap 

Funds with existing residential LRBAs that have a compliance breach face a specific risk. Under the legislation, the transition exception attaches to borrowing arrangements entered into before commencement. A restructure of a non-compliant arrangement could constitute a new borrowing arrangement — not a continuation of the original — and therefore fall outside the exception. A genuinely new residential LRBA after commencement is prohibited. The fund may find itself unable to legally maintain the corrected structure. 

The legislation does not expressly address this scenario. ATO guidance may clarify it in due course, but does not yet exist. Trustees and advisers managing funds with known or potential LRBA compliance issues should consider whether remediation can occur before commencement. Auditors who identify LRBA contraventions in the 2025 cycle should flag this risk explicitly when raising the matter with trustees and their advisers. 

For SMSF Auditors 

• Existing LRBAs: no change to audit treatment. Pre-existing arrangements remain valid. Apply the same scrutiny: correct establishment, single acquirable asset compliance, holding trust arrangements, and arm’s length terms under s 109 / SMSFR 2012/1. 

• Timing is evidentiary for midstream arrangements. Contract dates, loan execution, and settlement timing will determine whether an arrangement qualifies under the transition. Contemporaneous documentation will be the difference between a clean conclusion and a query. 

• Compliance breaches in existing LRBAs require urgent attention. A post-commencement restructure of a non-compliant arrangement may be treated as a new prohibited arrangement. Flag this clearly in contravention reporting and ensure advisers are across the risk. 

• Hold the independence line. Trustees will ask what they can still do. Explain what the rules are; do not structure around them. 

• Confirm the commencement date. The operative date is 45 days after royal assent. That date is not yet fixed. Do not rely on any specific cut-off until the assent date is confirmed. 

The Takeaway 

The ban is narrow and prospective. Existing LRBAs are unaffected. The key legislative clarity is that a pre-commencement purchase contract should protect the acquisition limb of the transition — settlement can occur after commencement. But the borrowing arrangement is a separate question, the Act is not yet law, and funds with compliance issues in existing arrangements face a specific restructuring risk that needs attention before commencement.