If you’ve seen a headline or article in the last three months, you may have heard that LRBAs are banned for residential or that Division 296 now applies to every SMSF.
Neither statement is correct.
The LRBA changes for SMSFs in 2026 restrict which real property can be acquired under new borrowing arrangements. Division 296 is a separate tax measure that applies to individuals with large total superannuation balances.
Understanding the difference can help you work out which change actually affects your fund.
What actually changed, in plain terms
An LRBA, or limited recourse borrowing arrangement, allows an SMSF to borrow money to acquire an asset under specific rules.
LRBAs have not been banned. From 10 August 2026, new LRBAs involving real property are restricted to property that meets the business real property requirements.
Division 296 is separate. It applies to individuals based on their total superannuation balance rather than simply the value of one SMSF.
If you want more detail on how LRBAs work, including bare trusts and borrowing risks, read creditte’s SMSF property and borrowing FAQ.
LRBA changes SMSF 2026: residential is out, business real property stays in
From 10 August 2026, a new LRBA used to acquire real property must involve business real property.
This means residential property can no longer be acquired through a new LRBA of this type. Business real property can still qualify where the relevant requirements are met.
If your fund entered into an LRBA before 10 August 2026, the transitional rules protect that arrangement.
The legislation also protects certain arrangements that maintain or refinance pre-existing borrowing. Because the protection depends on the arrangement, check the proposed terms before refinancing or changing an existing LRBA.
The change applies to new arrangements from 10 August 2026. It does not automatically unwind qualifying arrangements already in place.
Why this matters for construction and trade business owners
Business real property is real property used wholly and exclusively in one or more businesses.
A workshop, yard or warehouse may qualify. The actual use of the property matters, not simply whether it is described or marketed as commercial property.
A property with private or mixed use may not satisfy the test.
For a construction or trade business owner, this distinction matters. An SMSF may still be able to use an LRBA to acquire premises used by the business where the property satisfies the business real property rules.
Do not assume a property qualifies because it looks like a commercial site. Check the actual use and structure first.
Division 296: who it actually applies to
Division 296 applies from the 2026 to 2027 income year.
It applies to individuals based on their total superannuation balance. It is not simply a tax applied to the total assets held by an SMSF.
For 2026 to 2027, the first threshold is a total superannuation balance of 3 million dollars. A second threshold of 10 million dollars applies to very large balances. Both are indexed in later years, rising in steps as they track inflation.
Division 296 applies to realised earnings only. Dividends, interest, rent, and realised capital gains net of realised losses. Unrealised gains are excluded.
This is the point most people get wrong. If the property your SMSF owns goes up in value on paper, that alone does not create a Division 296 liability.
If an individual’s total superannuation balance is below the relevant threshold, Division 296 does not apply to them.
Because the test applies to the individual, an SMSF can hold a valuable business property without every member necessarily being affected.
Each member’s own total superannuation position needs to be considered.
The one-off cost base reset, and why it has a deadline
There is one decision attached to Division 296 that has a hard deadline.
Funds can elect to reset the cost base of fund assets to their market value as at 30 June 2026 for Division 296 purposes. The election is made at fund level. It is available even where no member is currently near a threshold. Once made, it cannot be reversed.
It must be made by the due date of the 2026 to 2027 fund tax return.
For a fund holding a property that has grown well since it was acquired, this is the item most likely to matter and the one most likely to be missed. It is worth getting advice on before the return is lodged, not after.
What to check if your SMSF holds business real property
There are two practical areas to review.
First, confirm that the property meets the business real property requirements. This matters if the fund is considering future borrowing or a new LRBA.
Second, keep current and supportable valuations and records for property held by the fund.
Accurate asset values are important for SMSF reporting generally. They may also form part of the information used when assessing a member’s total superannuation position.
A property valuation on its own does not determine whether Division 296 applies.
Property inside an SMSF also creates liquidity and governance considerations. Read common SMSF mistakes for more on the issues trustees should watch.
Getting clarity before it becomes a compliance issue
The LRBA changes and Division 296 are separate rules.
Treating them as one issue can lead to unnecessary confusion.
One business owner may incorrectly assume that all SMSF borrowing has stopped. Another may assume Division 296 applies because their fund owns a valuable property.
The better approach is to check the fund structure, property use and each member’s total superannuation position against the relevant rules.
Frequently asked questions
Are LRBAs banned from 2026?
No. LRBAs still exist. From 10 August 2026, a new LRBA used to acquire real property must involve property that meets the business real property requirements.
Can my SMSF still buy the premises my business operates from?
Potentially. Business real property can still qualify for a new LRBA where the property meets the relevant legal requirements. The actual use of the property needs to be checked before assuming it qualifies.
Does Division 296 apply to my SMSF?
Division 296 applies to individuals based on their total superannuation balance, not to the fund. For 2026 to 2027, the first threshold is 3 million dollars and a second threshold applies above 10 million dollars. It is charged on realised earnings only, so a rise in the value of fund property does not create a liability on its own. An SMSF can therefore hold valuable assets without every member necessarily being subject to Division 296.
What is the cost base reset and do I need to do anything?
Funds can elect to reset the cost base of their assets to market value as at 30 June 2026 for Division 296 purposes. It is a one-off, fund level election, it cannot be reversed, and it must be made by the due date of the 2026 to 2027 fund tax return. It is worth reviewing even if no member is close to a threshold today.
What happens to an LRBA I already have in place?
Existing arrangements entered into before 10 August 2026 are protected by the transitional rules. The legislation also protects certain arrangements that maintain or refinance pre-existing borrowing. Check the terms of any proposed change or refinance before proceeding.
Where to go from here
If your SMSF holds, or is considering holding, business real property, check how the LRBA changes and Division 296 apply before making a borrowing or property decision.
Download the SMSF guide for a practical overview of SMSF structure, property and common risks. If you would prefer to discuss your circumstances, book a discovery call with creditte.
This article contains general information only and does not take into account your individual circumstances. Speak with your creditte adviser before acting on anything here.
