ATO updates guidance on SMSF residential property borrowing ban

The Australian Taxation Office (ATO) has released updated guidance following legislative changes that restrict the use of Limited Recourse Borrowing Arrangements (LRBA) by Self-Managed Superannuation Funds (SMSF) for residential property. Under the Treasury Laws Amendment (Tax Reform No 1) Act 2026, LRBAs may only apply to business real property (BRP) starting from 10 August.

The ATO has updated several key documents, including SMSFR 2009/1 and SMSFR 2012/1, to reflect these shifts. Notably, references to residential houses in certain guidance have been replaced with terms like ‘building’ or ‘commercial building’ to align with the new definitions. Two of the six updated documents are currently open for public consultation until 27 November.

Experts have noted a surge in SMSF establishments leading up to the ban, with approximately 13,000 new funds recorded between 24 June and 10 August. Concerns have been raised regarding ‘off-the-plan’ purchases made prior to the deadline, as these may face financing difficulties or settlement issues if lenders reduce availability due to the new regulations. The ATO has indicated it will monitor funds established during this period to ensure compliance.