Australian SMSF residential borrowing restrictions

Australia has implemented a nationwide ban on self-managed superannuation funds (SMSFs) borrowing to purchase residential property. Under these legislative changes, SMSFs are prohibited from entering new Limited Recourse Borrowing Arrangements (LRBAs) for residential real estate, though existing loans are grandfathered.

In response, market research suggests trustees are pivoting strategies, with approximately 26% intending to shift borrowing toward commercial property and 27% planning to purchase residential property through personal holdings. Master Builders Australia has criticized the policy, with CEO Denita Wawn warning that the ban could jeopardize housing supply and construction jobs by impacting investor pre-sales.

Alongside these new restrictions, SMSFs remain subject to strict Australian Taxation Office (ATO) regulations regarding compliance and governance. Trustees must ensure all activities satisfy the ‘sole purpose test’ to provide retirement benefits, and they are prohibited from lending money to related parties. Furthermore, in-house assets must not exceed 5% of a fund’s total assets.