SMSF borrowing rules: What you can (and can’t) borrow for

There have been a number of changes made to the self-managed superannuation fund (SMSF) borrowing rules over the years. The most significant of these changes occurred in 2007 when the rules were somewhat relaxed to allow an SMSF to borrow to acquire certain assets.

Although these loans were originally allowed for investment in shares, restrictions around the rules mean they are now used predominantly for property assets.

Other more recent legislative changes make it possible for SMSFs to acquire property with limited recourse borrowing arrangements (LRBAs) using a holding trust.

Before these changes, there were strict rules around borrowing within an SMSF that only allowed short-term borrowings and in very limited circumstances.

Your SMSF can borrow money for a short period of time if that amount is less than 10% of the fund’s total assets and:

• The borrowing is for a maximum of 90 days to meet benefit payments or to pay an outstanding surcharge liability
• The borrowing is for a maximum of seven days to cover the settlement of security transactions. It is important to note that these borrowings are only allowed where you did not think you would need to borrow funds when the transaction arose.

Borrowing to invest

The only other time you can borrow within your SMSF is to acquire an eligible asset via LRBAs. Once again, certain rules apply.

An LRBA involves an SMSF trustee taking out a loan from a lender and purchasing a single acquirable asset (or collection of identical assets with the same market value) with the borrowings.

The asset must be held in a separate holding (bare) trust and any investment returns earned from the asset accrue to the SMSF. Expenses relating to the asset also need to be paid by the SMSF.

In the case of default on the loan, the lender’s rights are limited to the asset held in the separate trust – there is no recourse for the lender to pursue other assets in the SMSF. That’s why these loans are referred to as ‘limited recourse’.

Just like any investment you make within your SMSF, any asset you purchase via a loan needs to be for the sole purpose of providing a retirement benefit to the SMSF members. This also forms part of the SMSF investment strategy, which states how that investment will benefit the overall outcome of the fund.

When developing an investment strategy for your SMSF, you should consider and explain how the loan will be serviced at the same time as meeting all other fund expenses.

If, for example, the SMSF needs to pay a pension in the future, the investment strategy will outline how it will be paid while servicing the loan or whether the asset will be sold.

An investment strategy would also need to explain why a fund had allocated a significant portion of its funds to an illiquid asset if it had very few other investments.

Both borrowing and investing in property must also be allowed in the SMSF’s trust deeds.

2026–27 financial year changes to SMSFs and borrowings

In June 2026, the government announced major changes to the SMSF borrowing rules. These changes were a result of a deal made between the government and the Greens in order to secure support in the Senate for the government’s much wider tax reform package, including changes to the capital gains tax rules and the removal of negative gearing.

The key change is that the government has agreed to ban new LRBAs used by SMSFs to acquire residential property. Existing arrangements are not affected by these changes, and LRBAs are still allowed to be used where the asset being acquired is business real property.

For a property to satisfy the requirement to be business real property, it must be used ‘wholly and exclusively’ in one or more businesses. That business does not need to be a business run by the SMSF members; it can be anyone’s business.

The most common types of business real property include:

• Commercial office premises: an office suite used by an accountant, solicitor, consultant, medical practitioner or other professional business.
• Retail premises: a shop, showroom, café premises, restaurant premises or other customer-facing business site.
• Industrial property: warehouses, factories, workshops, depots, storage facilities and manufacturing premises.
• Rural or farming property: land used in a primary production business, such as farming, grazing, horticulture etc.
• Medical or professional consulting rooms: surgeries, clinics, dental rooms, veterinary premises or allied health consulting rooms.
• Residential-style property used in a business: less common, but possible where the property is genuinely used in a business, such as a doctor’s surgery, professional rooms, business premises or property developer trading stock.

How popular is SMSF borrowing?

Limited recourse borrowing arrangements have become a very popular way to acquire large assets within SMSFs, mainly used for direct property purchases.

As of September 2025, more than $75 billion in assets were held under limited recourse borrowing arrangements within SMSFs. This compares to the $22 billion in assets held in such arrangements in September 2015.

How does SMSF borrowing work?