When business real property counts

From 10 August 2026, SMSFs using a new limited recourse borrowing arrangement (LRBA) for real property must ensure that the asset is business real property within the meaning of section 66 of the Supervision Industry (Supervision) Act 1993 (SIS Act).

The practical effect is that new residential property LRBAs are excluded unless the property can satisfy the business real property test.

Existing arrangements entered into before that date, and refinances of those existing arrangements, are not affected by the change, regardless of whether the LRBA is financed through a bank, non-bank or related party lender.

It makes the definition of business real property more important than ever. The issue is not simply whether a property looks residential or commercial. The critical question is how the property is used at the relevant time and whether that use is wholly and exclusively in one or more businesses.

That distinction will be straightforward in many cases. A warehouse, factory, office suite, or retail premises used entirely for business will usually be easier to characterise. The difficulty arises where the property has residential features, mixed use, temporary vacancy, private occupation, or a business use that may be genuine but is not obvious from the property's appearance.

Those blurred-line cases are where trustees, advisers and auditors will need to be especially careful. The consequences of getting the classification wrong can be significant, particularly where the fund has borrowed to acquire the property, and the auditor is being asked to accept that the LRBA complies with the new law.