For years, self managed super funds had a quiet advantage. Since 2011, SMSFs could borrow to buy residential property through a limited recourse borrowing arrangement, while every other type of investor faced restrictions on gearing inside super. After the May budget tightened negative gearing on established homes bought outside super from 1 July 2027, that advantage suddenly looked a lot more attractive. Social media ads started pitching SMSFs as the new workaround, telling people to turn their super into a property portfolio.
The Greens, holding the balance of power in the Senate, refused to pass the government's tax package without shutting that door. The deal struck this fortnight bans SMSFs from borrowing to buy residential property going forward. If your fund already has an LRBA in place, it is grandfathered, you keep what you have. If you were planning to set one up, the window is closing fast and depends on exactly when the legislation passes.
My view: closing this off was the right call, but for the wrong reason if you listen to the political spin. This was never really about wealthy investors gaming the system. Wealthy investors can already borrow cheaply outside super. It was smaller SMSFs, often the only structure where an ordinary person could access leverage for property, that actually used LRBAs. Removing that option without giving smaller funds another lever to grow doesn't necessarily help first home buyers either, it mostly just removes a tool from people who were using super as their only practical way into property.
The irony is that the loophole was sold as a budget headline fix for housing affordability, but the people most likely to feel it are not the property tycoons the policy was aimed at, they are tradies, teachers, and small business owners running a two member fund who saw super leverage as their only realistic entry point.
If you are sitting on an SMSF and were eyeing a property purchase using borrowed money, the practical takeaway is simple: get advice now, not after the legislation passes. Existing arrangements are protected, new ones are not going to be an option once this clears the Senate.
"Labor has once again chosen to put the one per cent over the millions."— Larissa Waters, Greens leader
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