SMSF lending
SMSF lenders: why complying with the SIS Act matters
SMSF lenders must make sure every loan complies with the SIS Act. Since 10 August 2026, new LRBAs can only fund business real property. Here’s what lenders need to check.
Updated October 2026 to reflect current law.
If you lend to self-managed super funds (SMSFs), the Superannuation Industry (Supervision) Act 1993 (SIS Act) matters to you, not just to the fund. A non-compliant loan can expose the SMSF trustee to penalties, and can also expose people involved in the breach.
The rules also changed on 10 August 2026. New SMSF borrowing arrangements can now only be used to buy real property if it’s business real property. This notice explains what lenders need to know.
Key takeaways
- An SMSF generally can’t borrow. The main exception is a limited recourse borrowing arrangement (LRBA) that meets every condition in section 67A of the SIS Act.
- Since 10 August 2026, a new LRBA can only fund real property that is business real property. Residential investment property generally won’t qualify.
- Existing arrangements in place before 10 August 2026, and purchases under contracts entered into before that date, are generally grandfathered (preserved). Anyone changing or refinancing an existing LRBA should get advice first.
- A person involved in a breach of a civil penalty provision, such as the borrowing ban, is taken to have breached it too.
On this page
Why SIS Act compliance matters to SMSF lenders
Section 67(1) of the SIS Act stops an SMSF trustee from borrowing money, except in limited cases. Section 67A sets out the main exception: a limited recourse borrowing arrangement.
- Civil penalties: section 67(1) is a civil penalty provision (section 193). A court can make civil penalty orders against a person who contravenes it (section 196).
- Involved persons: under section 194, a person who is involved in a contravention of a provision that isn’t an offence is taken to have contravened it. Depending on the facts, that could include a lender or adviser who helps put a non-compliant loan in place.
- Criminal liability: a contravention becomes an offence if it’s done dishonestly to gain an advantage, or with intent to deceive or defraud (section 202).
- Tax and compliance fallout: a breach can put the fund’s complying status at risk, with serious tax consequences for the fund and its members.
Even if your security is technically enforceable, being linked to a non-compliant SMSF loan can damage your reputation with brokers, advisers and borrowers.
What changed on 10 August 2026?
Schedule 5 of the Treasury Laws Amendment (Tax Reform No. 1) Act 2026 (No. 49, 2026) added a new paragraph 67A(2)(c) to the SIS Act. It started on 10 August 2026.
Under it, an asset that is real property is only an “acquirable asset” for an LRBA if it is business real property within the meaning of section 66. In broad terms, that means real property used wholly and exclusively in one or more businesses. A residential investment property rented to tenants generally won’t meet this test.
What is grandfathered?
The change applies to arrangements entered into on or after 10 August 2026. Existing arrangements are generally preserved. The change generally doesn’t apply where:
- the arrangement was entered into before 10 August 2026; or
- the asset is acquired under an arrangement (such as a contract for sale) entered into before that date, even if settlement happens later.
Anyone changing or refinancing an existing LRBA should get advice first.
The ATO has published guidance on the changes to limited recourse borrowing arrangements.
What this means in practice for lenders
- New residential SMSF loans: unless a grandfathering rule applies, don’t approve a new LRBA to buy residential property.
- Commercial property: check, with evidence, that the property is used wholly and exclusively in a business. Consider how its use will be monitored during the loan.
- Refinances: get evidence that the original LRBA was entered into before 10 August 2026. Make sure the borrower gets advice before changing or refinancing an existing LRBA.
- Contracts exchanged before 10 August 2026: sight the contract and its date before relying on the exception.
- Other assets: LRBAs for assets that aren’t real property (for example, some shares or units) are not affected by the new paragraph, but must still meet every other condition.
The LRBA conditions lenders should check
| SIS Act requirement (s 67A) | What to check |
|---|---|
| Single acquirable asset | The loan is used to buy one asset (or a collection of identical assets of the same market value), plus allowed costs. It can’t fund improvements. |
| Acquirable asset | The asset isn’t money, isn’t prohibited by law and, for real property, is business real property (unless grandfathered). |
| Held on trust | The asset is held on trust (usually by a bare or holding trustee) so the SMSF trustee has the beneficial interest. |
| Right to acquire legal title | The SMSF trustee can acquire legal ownership by making one or more payments. |
| Limited recourse | The lender’s rights against the SMSF trustee on default are limited to the asset. This also limits any guarantor’s right to be indemnified by the SMSF trustee. |
| No other charges | The asset isn’t subject to any other mortgage, lien or encumbrance, apart from those allowed under the arrangement. |
Lenders commonly ask SMSF members for personal guarantees. Those guarantors should get their own advice. See our guarantor independent legal advice service.
Ensuring SIS Act compliance: how we can help you
We help banks and non-bank lenders make sure their SMSF loan documents, processes and individual transactions meet the SIS Act.
Our Fixed-Fee SMSF Lending Transaction Service includes the following:
- Document the Limited Recourse Borrowing Arrangement (LRBA) using the lender’s documents or if required, our SIS Act compliant loan documents
- If required, issue loan documents via a secure online customer portal for review and execution. Alternatively, issue hard copies of loan documents where required. Review signed loan documents to ensure valid execution
- Undertake a review of the SMSF Trust Deed to ensure it provides the SMSF trustee with the required powers to enter into an LRBA with the lender (this extends beyond just the power to borrow)
- Undertake a review of the Bare/Property Trust Deed to ensure it correctly identifies the underlying property and validly documents a bare trust relationship between the SMSF and Bare Trustee (as is required under the SIS Act)
- Confirm whether the property is business real property under the SIS Act or, if it isn’t, whether the arrangement is grandfathered (for example, because the purchase contract was entered into before 10 August 2026)
- Undertake a review of the Contract for Sale to ensure the correct purchaser is noted (being the Bare Trustee) and that the property is a single acquirable asset. This includes a review of any inclusions noted in the contract to ensure the property remains a single acquirable asset (as is required under the SIS Act)
- Provide the SMSF Borrower with a letter documenting our review and listing any outstanding items that must be attended to prior to settlement. This involves liaising with the SMSF and their advisers to address any issues we have identified and then obtaining all outstanding items prior to settlement
- Provide the lender with a letter documenting our review, providing our recommendations and listing any outstanding items required from the SMSF borrower prior to settlement
- Prior to settlement, provide the lender with a written legal certification (in the form of a Solicitor Certification) confirming the particular transaction is compliant with the SIS Act
- Attending to settlement, ensuring the PEXA workspace correctly notes the LRBA structure (i.e., to ensure that the bare trustee is reflected as the transferee and to ensure that all loan funds are applied to the purchase of the single acquirable asset)
Why choose us
Our lawyers have helped lenders set up SMSF lending programs and have acted for banks and non-bank lenders on SMSF transactions. We also give transaction-specific SMSF compliance advice to lenders.
Our Fixed-Fee SMSF Lending Transaction Service gives you clear, predictable costs, so you can focus on your business.
SMSF lender FAQs
Can an SMSF still borrow to buy residential property?
Not under a new LRBA entered into on or after 10 August 2026, unless the property is business real property or a grandfathering rule applies. A residential rental property generally won’t qualify.
Can we refinance an existing residential SMSF loan?
Existing arrangements in place before 10 August 2026 are generally preserved. Anyone changing or refinancing an existing LRBA should get advice first. Get evidence of the original arrangement too.
What if the SMSF exchanged contracts before 10 August 2026?
If the asset is acquired under an arrangement entered into before 10 August 2026, the new paragraph doesn’t apply, even if settlement or the loan happens afterwards.
Does the change affect SMSF loans for commercial property?
Commercial property can still be bought with an LRBA if it’s business real property and every other section 67A condition is met.
Get in touch with us
Talk to our SMSF lending team
SMSF Lending & Advisory
If you’d like help with your SMSF lending practices, or a tailored fixed-fee proposal, visit our SMSF lending and advisory page. For trustees and advisers, our article on how an SMSF can borrow to buy property explains the rules from the fund’s side, and our SMSF set-up and advisory team can help with trust deeds and structures.
This article is general information only and is not legal advice. It reflects Australian law at the date of publication. Please contact us for advice about your circumstances.
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