Borrowing after the ban: the LRBA today

Super borrowing survived 2026 with one job left: business real property. Here is how the structure works, what it costs, and the traps on both sides of the grandfather line.

Borrowing inside super was never a normal mortgage, and the 2026 reform made it rarer still. What remains is a precise legal machine called the limited recourse borrowing arrangement, the LRBA, and if your fund is going to use debt, you need to understand the machine well enough to know when your professionals have built it correctly.

This chapter is the machine, the money, and the two groups reading it from opposite sides of 10 August 2026.

How the structure actually works

Superannuation law bans a fund from borrowing, then carves out one exception with strict geometry. In an LRBA:

• A separate trust, usually called a bare trust or holding trust, holds the legal title to the property
• Your fund is the beneficial owner: it puts in the deposit, makes the repayments, receives the rent and gets the title transferred to it once the loan is repaid
• The lender’s recourse, if everything goes wrong, is limited to that one property. They cannot touch the rest of the fund

That last point is the “limited recourse” in the name, and it is why lenders treat these loans differently: their security is thinner, so their terms are tougher.

The structure means your buying process has an extra step residential investors never meet: the bare trust and its trustee, almost always a separate special purpose company, must exist and be correctly named on the contract before you sign. Chapter 12 returns to this, because getting the purchaser name wrong on a commercial contract is the classic five figure LRBA mistake, fixable only with lawyers, duty offices and luck.

The rules that ride along with the loan

Three design rules shape what you can buy and do.

One asset per arrangement. An LRBA covers a single acquirable asset, in practice one title, or multiple titles only where the law requires them to be dealt with together. Buying three strata units means three arrangements or a rethink.

Business real property only. For any LRBA entered from 10 August 2026, the property must be business real property, the chapter 4 definition: used wholly and exclusively in one or more businesses, with the farm concession as the main nuance. Established, tenanted commercial premises pass comfortably. Vacant land fails; nothing is being used in a business. And here is the live warning practitioners have been sounding since the reform: brand new or off the plan commercial premises, never yet occupied by any business, sit in genuinely uncertain territory on the “used in a business” test at the time the arrangement is entered. Until guidance settles, treat off the plan commercial under an LRBA as a specific advice question, not a given. Established premises with a tenant in place are the clean path.

Repairs yes, improvements no. Borrowed money can maintain and repair the asset. It cannot improve it. The fund’s own cash can pay for improvements, but even then the asset cannot be changed so much it becomes a different asset while the loan is in place: the warehouse cannot become apartments. If your plan for a property involves serious works, have the LRBA implications mapped before settlement.

The money: what the market charges

As I write, the lending market for business real property LRBAs looks like this. Date stamp the lot and get live quotes when you are real.

• Deposits: 30 to 35 per cent is standard. Some specialist lenders stretch further for strong deals; plan on 35 and be pleased.
• Rates: typically 1 to 2 percentage points above comparable standard lending, which in the current market puts most quotes in the low to mid 7s. The limited recourse is priced in.
• Terms: 15 to 25 years, principal and interest as the norm. Long interest only periods are largely a relic.
• Liquidity tests: most lenders want the fund to show liquid assets after settlement, commonly 5 to 10 per cent of the purchase price. This is your chapter 5 buffer wearing a compliance badge; you were holding it anyway.
• Personal guarantees: near universal. Understand what this does to the risk picture: the lender’s recourse against the fund is limited to the property, but your guarantee puts your personal assets behind the loan. Limited recourse protects your super, not you.

The lender landscape is its own story. The major banks left SMSF lending years ago, and the market belongs to non-bank and specialist lenders who know these structures cold. That is fine, and in some ways better: a lender who writes LRBAs weekly will catch structural errors your local branch never would. Appendix J gives you the comparison sheet; a broker who works SMSF commercial deals regularly is worth their fee here more than almost anywhere.

The related party loan, and the safe harbour

Here is an option residential investors never had reason to learn: the lender to your fund can be you.

A member, or an entity you control, can lend to the fund under an LRBA, provided the loan is on arm’s length terms. Where does the money come from? Often equity in the family home, borrowed personally at home loan rates and on-lent to the fund. Done properly, it is legal and sometimes the cheapest structure available. Done sloppily, it is a NALI bomb: a loan on friendly terms is a non-arm’s length dealing tied to a specific asset, and chapter 4 told you what that means: the property’s entire income and eventual capital gain taxed at 45 per cent.

The ATO publishes a safe harbour that takes the guesswork out. Match its terms and the loan is accepted as arm’s length without debate. For real property in 2026 to 27 the safe harbour looks like this: interest at 9.35 per cent (the rate resets each July off a published benchmark), maximum 70 per cent loan to value ratio, maximum 15 year term, monthly principal and interest repayments, a written loan agreement and a registered mortgage.

Yes, 9.35 per cent is more than a bank would charge. The interest is going to yourself, which changes how much you care, but run the numbers both ways and remember the interest is taxable income in your hands. You can lend outside the safe harbour at a genuinely benchmarked commercial rate, but then you carry the burden of proving arm’s length. Most people who can match the safe harbour, should.

What the structure costs to build and unwind

Add these to chapter 5’s cost stack when debt is involved: bare trust deed and setup, commonly $1,000 to $2,500; the bare trustee company and its ASIC annual review fee, with the classification trap from chapter 5 noted; lender application, legal and valuation fees, often a few thousand on commercial deals; and your own lawyer’s review of the loan and trust documents, which is not the place to save $800.

At the happy end, when the loan is repaid, legal title moves from the bare trustee to the fund. In most states this final transfer attracts only nominal duty, provided the original documents were drafted correctly and the paper trail shows the fund funded everything. That “provided” is why the deed is a legal document and not a $99 download: a defect discovered at year 15 can turn a stamp of duty into a second full serve of it.

For the grandfathered: holding a pre ban residential loan

If, like Sarah and Marcus, you hold a residential LRBA from before 10 August 2026, your position is secure but specific. What you can do: continue to term exactly as before, refinance (explicitly permitted by the legislation), repair and maintain with borrowed money, improve with fund cash within the character limits above, and sell whenever you like on the open market. What you cannot do: borrow again for residential once this loan is gone. The door closed behind you; grandfathering protects the arrangement, not the strategy.

The live risk is the lender pool. When a ban on these loans was merely floated back in 2019, lenders abandoned SMSF residential products before any law existed. Since the actual ban, the market for refinancing grandfathered loans has been thinning the same way. Sarah and Marcus’s response is the sensible template: they had their broker test refinance options this year while their loan is young and their equity strong, they are directing spare contributions to principal to shrink dependence on any future lender, and they have written down their own trigger points for the sell decision rather than waiting to have one forced. If your loan is older or your equity thinner, do that review now, not at renewal.

And one warm note: nothing about the reform makes their property a bad asset. It cashflows, it grows, and it will pay pensions one day. Grandfathered is not stranded. It just means the exits and refuellings are on a map that no longer gets new roads.

When borrowing is the wrong answer

Debt inside super amplifies outcomes in both directions and adds structure cost in all of them. If the fund can buy the right asset outright and still hold its buffer, the case for gearing needs to be made, not assumed. If the buffer only survives on the brochure scenario, chapter 5 already gave you your answer. And if retirement is close, remember the loan’s end date and your pension’s start date need to be on speaking terms; chapter 14 shows why.

Find your sweet spot, or have the guts to walk away.