Prime Minister Anthony Albanese said on Tuesday that the government will ban future limited recourse borrowing arrangements (LRBAs) used by SMSFs to acquire residential properties.
The move is part of a broader deal with the Greens to secure Senate support for the government’s housing-related tax reforms.
"The Government has agreed to support an amendment that will be moved by the Greens to ban future limited recourse borrowing arrangements for residential property by superannuation funds," a statement from the Prime Minister's office read.
"Superannuation funds are generally prohibited from borrowing money to invest, with the exception of LRBAs that are used by SMSFs."
See also: Everything you need to know about buying a property through an SMSF
As part of the agreement, the government has also agreed to support the Greens’ demand to delay legislation to overhaul the National Disability Insurance Scheme (NDIS).
SMSFs banned from borrowing to buy residential properties
The policy change will prevent self‑managed superannuation funds (SMSFs) from entering new borrowing arrangements to purchase residential property, although existing loans will be grandfathered.
The ban will take effect 45 days after the relevant budget legislation receives royal assent.
Transactions already in progress during that period are protected.
Under current rules, SMSFs are permitted to borrow funds through an LRBA to purchase residential properties for investment purposes.
These arrangements are subject to strict conditions, including compliance with the ‘sole purpose test’, which requires the fund to exist solely to provide retirement benefits to members.
Commercial property borrowing remains permitted for SMSFs
The proposed reform explicitly applies only to residential properties, which means loans to purchase commercial properties may not be affected.
Commercial property has historically been more popular with SMSF investors, with one of the draws being SMSFs can lease the property back to themselves at market rate.
See also: SMSF commercial loans vs traditional loans
‘SMSF lending ban designed to protect retirement savings’
Defending the Labor and Greens deal, Treasurer Jim Chalmers said restrictions on SMSF borrowing to buy residential properties was intended to reduce risk and protect retirement savings.
Dr Chalmers also said the ban had been recommended under various reviews.
"Multiple inquiries have raised concerns that these arrangements raise risks for superannuation investors, including the 2014 Murray Financial System Inquiry conducted for the Coalition, and limiting new arrangements going forward will help protect people’s savings," he said.
The government claims the policy reform will only have a marginal impact on housing finance.
“SMSFs, for example, are less than 1% of total residential property borrowing, and less than 0.5% of new residential borrowing each year,” Dr Chalmers said.
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