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Regulatory Update

SMSF borrowing and business real property: what Schedule 5 changed

Schedule 5 of the Treasury Laws Amendment (Tax Reform No. 1) Act 2026 narrows what an SMSF can borrow to acquire. From 10 August 2026, where the asset is real property, it must be business real property — but only for arrangements entered into on or after that date, and nothing in the Schedule requires an existing arrangement to be unwound.

Published Sources verified 9 min read

Applies to: Arrangements entered into on or after 10 August 2026 (Schedule 5 commencement). Arrangements entered into before that date are unaffected. Act text verified 13 July 2026. · Australia

The direct answer

Schedule 5 of the Treasury Laws Amendment (Tax Reform No. 1) Act 2026 commences on 10 August 2026 and amends the definition of “acquirable asset” in section 67A(2) of the Superannuation Industry (Supervision) Act 1993: for an asset that is real property, the asset must be business real property within the meaning of section 66 of that Act. It applies only to arrangements entered into on or after 10 August 2026 — arrangements entered into before that date are outside the amendment, and the Schedule contains no divestment requirement, no forced sale and no sunset date.

Key points

  • Schedule 5 is law. It was part of the Treasury Laws Amendment (Tax Reform No. 1) Act 2026 (No. 49 of 2026), which received Royal Assent on 26 June 2026. Schedule 5 commences on the 45th day after assent — 10 August 2026.
  • It amends section 67A(2) of the SIS Act — the definition of acquirable asset — by adding: “for an asset that is real property — the asset is business real property (within the meaning of section 66 of this Act)”. It does not amend section 67B, and it adds no new condition to the section 67A(1) exception itself.
  • The test is the date the arrangement was entered into, not an income year, not the drawdown date and not settlement. It applies only to arrangements entered into on or after 10 August 2026.
  • Arrangements entered into before 10 August 2026 are outside the amendment entirely. Item 2(2) separately carves out — but only to the extent that they do so — an arrangement that maintains or refinances a borrowing under a pre-commencement arrangement, and an acquisition that happens under a pre-commencement arrangement, even if settlement happens after that date. Those words “to the extent that” are a real limit: the Act does not resolve how far the carve-out reaches where a refinance increases, restructures or consolidates the borrowing.
  • There is no divestment provision, no forced sale, no unwinding requirement and no sunset date anywhere in Schedule 5. Nothing in it requires an existing SMSF loan to be repaid or an existing property to be sold.
  • It does not stop an SMSF acquiring real property without borrowing. Schedule 5 amends only the definition feeding the limited recourse borrowing exception — not the sole purpose test, not the section 66 related-party acquisition rules, and not the in-house asset rules.
  • Only real property is affected. Shares, units and other non-real-property acquirable assets are untouched by Schedule 5.
  • “Business real property” is a technical defined term in section 66(5), turning on real property used wholly and exclusively in one or more businesses. It is not a synonym for “commercial property”, and whether a particular property qualifies is fact-specific.

What Schedule 5 actually changed

Schedule 5 of the Treasury Laws Amendment (Tax Reform No. 1) Act 2026 (No. 49 of 2026) contains just two items: an amendment, and an application provision. The amendment is narrow and precisely targeted. It adds a new paragraph to the definition of acquirable asset in section 67A(2) of the Superannuation Industry (Supervision) Act 1993, so that as amended the subsection reads: an asset is an acquirable asset if it is not money, if no law prohibits the trustee from acquiring it, and — “for an asset that is real property — the asset is business real property (within the meaning of section 66 of this Act)”.

The provision matters

Schedule 5 amends section 67A(2) — the definition of acquirable asset. It does not amend section 67B, and it does not add a new condition to the section 67A(1) exception itself. Getting the provision wrong misstates how the rule bites and misstates what flows from it.

The mechanism runs through the existing architecture of the SIS Act. Section 67(1) prohibits a trustee of a regulated superannuation fund from borrowing money or maintaining an existing borrowing. Section 67A(1) is the limited recourse borrowing arrangement exception to that prohibition, and it requires the borrowed money to be applied for the acquisition of a single acquirable asset. Narrow the definition of “acquirable asset” and you narrow the exception: for arrangements to which the amendment applies, real property that is not business real property is not an acquirable asset, the section 67A(1) exception is unavailable, and the section 67(1) prohibition applies.

One flow-on is worth stating carefully. Schedule 5 does not amend section 67B (replacement assets) or section 71(8). But because “acquirable asset” is defined by reference to section 67A, the narrowed definition carries through wherever that defined term is used — and it does so only for arrangements to which Schedule 5 applies, not retrospectively across arrangements already on foot.

Commencement, and the date that actually matters

The Act received Royal Assent on 26 June 2026. The section 2 commencement table sets Schedule 5 to commence on “the 45th day after this Act receives the Royal Assent” — that is 10 August 2026. Schedule 5 is deliberately not on the 1 July commencement rule that governs some other schedules of the same Act, and it has no income-year application test at all.

The application provision, item 2(1), is the sentence to hold onto: the amendment applies “in relation to arrangements entered into on or after the commencement of this Schedule under which money is borrowed, or borrowings of money are maintained, for the acquisition of assets”. The trigger is the date the arrangement was entered into. It is not the date the money is drawn down, not the date of settlement, not the date the asset is acquired, and not the date the fund was established.

What the dates do and do not mean
StatementPosition under Schedule 5
“It starts on 1 July 2026”Wrong. Schedule 5 commences on 10 August 2026 — the 45th day after Royal Assent.
“It applies from the 2026-27 income year”Wrong concept. Schedule 5 has no income-year test. Application turns on when the arrangement was entered into.
“It applies to arrangements entered into on or after 10 August 2026”Correct — this is the test in item 2(1).
“It applies to settlements occurring on or after 10 August 2026”Wrong. A settlement after commencement, under an arrangement entered into before it, is expressly carved out by item 2(2)(b).

“Entered into” is not defined

Schedule 5 does not define when an arrangement is “entered into”. Whether a given borrowing arrangement — or the underlying contract of sale — was entered into before 10 August 2026 is a question of fact and law on the particular documents. The Act supplies no bright-line rule, and neither do we: this is exactly the kind of question that needs to be worked through on your actual paperwork with your adviser and, where relevant, a legal practitioner.

The transitional protections — read exactly

Item 2(2) carves two situations back out of the amendment, and a Note to item 2 spells out what continues to be covered by the section 67A(1) exception. Both carve-outs are qualified by the words “to the extent that” — they can apply partially to an arrangement, rather than only all-or-nothing.

Schedule 5, item 2(2) — the carve-outs
SituationProvisionEffect
The arrangement was entered into before 10 August 2026item 2(1), by omissionOutside the amendment entirely. The Note confirms a borrowing arrangement entered into before commencement continues to be covered by the section 67A(1) exception.
Maintaining or refinancing a borrowing under a pre-commencement arrangementitem 2(2)(a)The amendment does not apply to the extent that the arrangement is for maintaining (or refinancing) a borrowing of money under another arrangement entered into before commencement.
The acquisition happens under a pre-commencement arrangement — including where settlement is lateritem 2(2)(b) and the NoteThe amendment does not apply to the extent that the acquisition of the asset (to which the borrowing relates) happens under an arrangement entered into before commencement — even if settlement for the acquisition happens after commencement.

No divestment. No forced sale. No sunset.

Schedule 5 contains no provision requiring the disposal, unwinding or restructuring of any existing limited recourse borrowing arrangement or any asset held under one. There is no sunset date, no transition end-date and no grandfathering expiry anywhere in the Schedule. If you hold an SMSF property under an arrangement entered into before 10 August 2026, nothing in Schedule 5 requires you to repay the loan or sell the property.

The one place the protections stop short of a blanket assurance is the refinance case. Item 2(2)(a) protects a post-commencement arrangement only to the extent that it maintains or refinances the earlier borrowing. The Act does not say how an increased, cash-out, restructured or consolidated refinance is treated, and that cannot be resolved from the text alone. We do not publish a confident answer in either direction — a refinance of an existing SMSF borrowing should be scoped with advice before it is committed to.

“Business real property” — the defined term, not a label

The new paragraph picks up the definition in section 66(5) of the SIS Act. It is a technical term, and the single most common error in commentary on this measure is to treat it as a synonym for “commercial property”. It is not. The definition turns on actual use, not on zoning, not on a property being described as commercial, and not on the type of building.

  • What it covers: a freehold or leasehold interest of the entity in real property; certain interests in Crown land (other than leasehold) that are capable of assignment or transfer; and any further class of interest prescribed by regulations for that purpose.
  • The controlling condition: the real property must be used wholly and exclusively in one or more businesses. “Wholly and exclusively” is a demanding standard, and it is the reason characterisation is so fact-dependent.
  • Whose business: the business-use limb is entity-neutral — the property must be used wholly and exclusively in one or more businesses “whether carried on by the entity or not”. The business does not have to be the fund’s, or a related party’s.
  • What “business” means here: section 66(5) defines it to include any profession, trade, employment, vocation or calling carried on for the purposes of profit — including primary production and the provision of professional services — but not occupation as an employee.
  • An express exclusion: the definition does not include any interest held in the capacity of beneficiary of a trust estate.
  • The primary-production dwelling concession survives: under section 66(6), farm land does not lose business real property status merely because an area of no more than 2 hectares contains a dwelling used primarily for domestic or private purposes — provided that domestic or private use is not the predominant use of the real property. Schedule 5 does not touch this concession; the new paragraph picks it up by referring to section 66.

We cannot tell you from a website whether a property qualifies

Whether a particular property is business real property is a question of fact on that property’s actual use. Nothing in this resource characterises any property as business real property, and nothing here should be read as an indication that a given purchase would satisfy the definition. That determination needs to be made on the specific facts, with advice, before an arrangement is entered into.

What Schedule 5 does not change

The scope limits are as important as the change itself, and several widely repeated summaries of this measure get them wrong. Schedule 5 is two items long. It changes one definition. Everything below is outside it.

  • Buying property without borrowing. Schedule 5 amends only the definition feeding the section 67A borrowing exception. A fund acquiring real property without borrowing is unaffected by this Schedule — subject, as always, to the rules that already applied.
  • Non-real-property assets. The new paragraph is expressly conditioned “for an asset that is real property”. Shares, units, listed securities and other acquirable assets are untouched.
  • The sole purpose test (section 62). Not amended by Schedule 5.
  • The related-party acquisition rules (section 66). Not amended. Schedule 5 refers to section 66 for a definition; it does not change how section 66 itself operates.
  • The in-house asset rules. Not amended by Schedule 5.
  • The rest of section 67A. The single-acquirable-asset requirement, the holding-trust structure, the limited recourse condition and the other elements of the exception continue to apply as before.
  • **The fund’s investment strategy obligations.** Unchanged — and still the trustees’ responsibility.

For the wider trustee obligations that continue to sit around any property held in a fund, see our guide to the SMSF property rules and the SMSF compliance calendar.

What the Act does not resolve

This measure is enacted law, but enacted is not the same as settled. Four things are genuinely unresolved on the face of the Act, and we state them plainly rather than papering over them.

The four open questions

  1. When is an arrangement “entered into”?. Schedule 5 does not define it. Whether a particular LRBA — or the underlying contract of sale — was entered into before 10 August 2026 is a question of fact and law on the documents. No bright-line rule (loan approval date, unconditional date, or any other) appears anywhere in the Act.
  2. How far does the “to the extent that” carve-out reach on a refinance?. Item 2(2)(a) protects a post-commencement arrangement only to the extent it maintains or refinances a pre-commencement borrowing. The text does not spell out what happens where the refinance increases the borrowing beyond the pre-commencement amount, or restructures or consolidates it. It cannot be resolved from the Act alone.
  3. Whose business real property?. The section 66(5) definition is expressed “in relation to an entity”, but the new section 67A(2)(c) does not identify the relevant entity. Under an LRBA the property is held on trust by a holding trustee, and the definition excludes an interest held in the capacity of beneficiary of a trust estate. How the definition maps onto the holding-trust structure is not resolved on the face of the amending words.
  4. There is no regulator guidance yet.. At 13 July 2026 no ATO or APRA administrative guidance on Schedule 5 had been published. Nothing in this resource describes how the measure will be administered, because nothing has been said.

Why we are being this careful

The consequence of getting the borrowing exception wrong is not a tax adjustment — it is a contravention of section 67(1) of the SIS Act by the trustee. That asymmetry is why this resource records the uncertainties rather than smoothing them out, and why it does not offer a rule of thumb where the Act supplies none.

Where this leaves trustees

The practical position divides cleanly by where an arrangement sits relative to 10 August 2026 — subject always to the dating question above, which is a matter of fact on the documents.

Reading your own position
Where you areWhat Schedule 5 does
An LRBA already on foot, entered into before 10 August 2026Nothing. The arrangement is outside the amendment. No repayment, refinance or sale is required by Schedule 5.
Contracted before 10 August 2026, settling afterwardsItem 2(2)(b) is directed at this. Whether the arrangement was “entered into” before commencement is a question of fact on the documents.
Considering a new LRBA over real property, entered into on or after 10 August 2026The real property must be business real property within the meaning of section 66. Characterisation is fact-specific and needs advice before anything is signed.
Considering a purchase without borrowingSchedule 5 does not apply. The pre-existing rules — sole purpose, related parties, in-house assets, investment strategy — continue to govern.
Refinancing a pre-commencement borrowing after 10 August 2026Protected to the extent that it maintains or refinances the earlier borrowing. Increased, cash-out or restructured refinances are not resolved by the text.

Two different conversations, kept separate

An SMSF borrowing decision sits across four disciplines: superannuation law, tax, legal structuring and credit. The tax and superannuation questions — how the fund is affected, what the amendment means for the arrangement — are matters we can discuss as a registered tax agent. Any question about a loan is credit assistance, provided under our licensing arrangement and described in our Credit Guide. Nothing in this resource is an indication that finance is available, appropriate, or would be approved, and we are not an Australian financial services licensee — decisions about superannuation as a financial product should be discussed with a licensed financial adviser.

Hypothetical example — how the dating question actually arises

Imagine the fictional “Kestrel Ridge Superannuation Fund”, whose trustees exchanged a contract to buy a warehouse on 1 August 2026, with settlement scheduled for October 2026 and a limited recourse borrowing arrangement contemplated to fund part of the purchase. The provision directed at that shape of facts is item 2(2)(b): the amendment does not apply to the extent that the acquisition of the asset happens under an arrangement entered into before commencement, and the Note confirms this holds even where settlement occurs after 10 August 2026. That is where the analysis starts, not where it ends — because Schedule 5 does not define when an arrangement is “entered into”, and because the borrowing arrangement and the contract of sale are not necessarily entered into on the same day. This example illustrates which provision is engaged; it is not a determination that any particular arrangement is protected, and no such conclusion should be drawn for a real fund without advice on the actual documents.

This example is entirely hypothetical and illustrates the mechanics only. It is not a client outcome, a prediction, or advice.

Limitations of this information

  • This is general information only — it is neither tax advice, superannuation advice, legal advice nor credit assistance, and it does not consider your objectives, financial situation or needs.
  • Every legal statement here traces to the text of the Treasury Laws Amendment (Tax Reform No. 1) Act 2026 as registered, and to the SIS Act compilation on the Federal Register, read on 13 July 2026. The explanatory memorandum was not relied on for any conclusion.
  • Schedule 5 does not define when an arrangement is “entered into”. Whether a particular arrangement was entered into before 10 August 2026 is a question of fact and law on the specific documents, and requires advice — this resource deliberately publishes no bright-line rule.
  • The extent of the item 2(2) “to the extent that” carve-out is not spelled out where a post-commencement refinance increases the borrowing beyond the pre-commencement amount, or restructures or consolidates it. We do not state a position either way.
  • The section 66(5) definition of business real property is expressed “in relation to an entity”, but the new section 67A(2)(c) does not identify the relevant entity under an LRBA holding-trust structure. This is unresolved on the face of the amending words.
  • Whether a particular property is business real property depends on its actual use and is fact-specific. Nothing here characterises any property as business real property, or indicates that a given purchase would satisfy the definition.
  • Paragraph (c) of the section 66(5) definition depends on regulations prescribing a further class of interest. We have not verified whether any such regulations have been made or what they contain, and this resource says nothing about them. This is a pre-existing power in the SIS Act, not one created by Schedule 5.
  • No ATO or APRA administrative guidance on Schedule 5 had been published at 13 July 2026. Nothing here describes how the measure will be administered.
  • The SIS Act compilation read for this resource is current as at 21 May 2026 and does not yet incorporate the Schedule 5 amendment. If a later compilation changes section 66, 67, 67A or 67B, the analysis should be re-verified.
  • Nothing in this resource states or implies that SMSF finance is available, appropriate for any fund, or would be approved. Lender policies for SMSF lending are set by lenders, differ between them, and can change without notice.

Practical next steps

  1. If your fund has an existing limited recourse borrowing arrangement, locate and keep the arrangement documents — the loan documents, the holding trust deed and the contract of sale. Under Schedule 5 the date the arrangement was entered into is the fact that matters, and it is proved from the paperwork.
  2. If your fund is considering a new borrowing arrangement over real property, settle two questions with advice before anything is signed: whether the property is business real property within the meaning of section 66, and when the arrangement will be treated as entered into.
  3. If you are contemplating refinancing a pre-10-August-2026 SMSF borrowing, have the extent of the item 2(2)(a) carve-out scoped for your specific facts — particularly if the new borrowing would be larger than the old one.
  4. Do not act on a summary of this measure that says SMSFs can no longer buy residential property, or that existing loans must be repaid or property sold. Neither statement is what Schedule 5 says.
  5. To work through the superannuation and tax side, see our SMSF property loans (LRBA) and SMSF compliance services, or contact the practice. Any credit assistance is provided under the licensing arrangement described in our Credit Guide, and decisions about superannuation as a financial product should be discussed with a licensed financial adviser.

Frequently asked questions

No — and it is important to be precise about this. Schedule 5 changes the definition of “acquirable asset” that feeds the limited recourse borrowing exception in section 67A of the SIS Act. It is about **borrowing**, not about ownership. An SMSF acquiring real property without borrowing is not affected by Schedule 5 at all, and remains subject to the rules that already applied — the sole purpose test, the section 66 related-party acquisition rules, the in-house asset rules and the fund’s own investment strategy, none of which Schedule 5 amends.

Official sources

The facts in this resource are drawn from the following official sources, each read on the date shown. If a source has changed since, the source prevails.

  • Treasury Laws Amendment (Tax Reform No. 1) Act 2026 (No. 49 of 2026)Federal Register of Legislation · retrieved 13 July 2026 · supports: Royal Assent on 26 June 2026; the section 2 commencement table (item 7 — the 45th day after assent, 10 August 2026); Schedule 5 item 1 (the amendment to s 67A(2) SIS Act); Schedule 5 item 2(1) and 2(2) (application and the transitional carve-outs) and the Note to item 2; and the absence of any divestment, unwinding or sunset provision.
  • Superannuation Industry (Supervision) Act 1993 — compilationFederal Register of Legislation · retrieved 13 July 2026 · supports: section 67(1) (the borrowing prohibition), section 67A (the limited recourse borrowing exception and the definition of acquirable asset), section 66(5) (the definition of business real property) and section 66(6) (the primary-production dwelling concession). Compilation current as at 21 May 2026 — it does not yet incorporate the Schedule 5 amendment.
Discuss your situation with us

This resource is general information only — neither tax advice nor credit assistance. Tax outcomes depend on individual facts, and lender policies differ and can change without notice. Speak to a registered tax agent about tax matters; any credit assistance we provide is described in our Credit Guide. It is also not financial product advice — we are not an Australian financial services licensee. Decisions about superannuation or other financial products should be discussed with a licensed financial adviser. Read our Credit Guide.

Last verified against official sources: · Next scheduled review by 13 October 2026 · Update sensitivity: high

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