On 26 June 2026, the Treasury Laws Amendment (Tax Reform No. 1) Act 2026 received Royal Assent, giving legislative effect to the Labor–Greens deal to limit self managed superannuation funds (SMSFs) from borrowing to acquire residential property.
Section 67A of the Superannuation Industry (Supervision) Act 1993 (SIS Act) is amended such that SMSFs can only borrow to acquire real property that meets the definition of business real property. In practical terms, this means SMSFs cannot enter into new borrowings to acquire most residential property. Borrowing for qualifying business real property remains allowable.
“Business real property” is defined in s66(5) of the SIS Act broadly to mean any freehold or leasehold interest in real property “where the real property is used wholly and exclusively in one or more businesses” whether the business is carried on by the owner of the real property or another entity.
The Commissioner in Self Managed Superannuation Funds Ruling SMSFR 2009/1 accepts that residential property can be business real property but only where the SMSF can be said to be carrying on a property investment business. The ATO treats most rental activities as investments rather than as a business, even where the taxpayer owns more than one property. The factors that show you are carrying on a business of letting rental properties are the:
- significant size and scale of the rental property activities
- significant number of hours spent on the activities
- extensive personal involvement in the activities
- business-like manner in which the activities are planned, organised and carried on such as through formal planning, record‑keeping and systems.
These factors are aligned with the general “carrying on a business” indicators drawn from case law and rulings (such as TR 97/11) and require a holistic assessment of the facts.
The ATO provide the following unhelpful examples:
Example: not carrying on a business
Saania owns 16 rental properties, 14 of which are managed by real estate agents. Saania frequently attends personally to rental property matters, for example collecting rent and arranging for repairs to be done. She also undertakes regular analysis to measure the financial performance of her rental properties.
Saania isn’t carrying on a business of property investing because the activities are no more than letting properties.
Example: carrying on a rental property business
Mr and Mrs Smith own several rental properties either as joint tenants or equal tenants in common. They own 8 houses and 3 apartment blocks. Each block comprises 6 residential units. So, they own a total of 26 rental properties.
The Smiths actively manage all of the properties. They devote a significant amount of time to these activities – an average of 25 hours per week each. They undertake all financial planning and decision-making for the properties. They interview all prospective tenants and conduct all of the rent collections. They carry out regular property inspections and attend to all of the everyday maintenance and repairs themselves or organise for them to be done.
The Smiths are carrying on a rental property business. This is indicated by the following factors:
- the significant size and scale of the rental property activities
- the number of hours they spend on the activities
- their extensive personal involvement in the activities
- the business-like manner in which the activities are planned, organised and carried on.
The examples need to be put in the context that the Courts have found that the maintenance of a couple of animals can amount to the business of primary production. So owning a couple of properties could also amount to a business if the other indicia are satisfied. If you want to continue to acquire residential property, then given the complying status of the SMSF is at stake you should always attain an ATO ruling that they accept the residential properties do amount to business real property.
The new provisions are effective from 10 July 2026. SMSFs therefore have a limited time to 9 July 2026 to enter into an arrangement to acquire residential property. From 10 July 2026 existing borrowing arrangements can continue or be refinanced. A new borrowing for new residential property can only be entered into to allow for the settlement of residential property acquired before 10 July 2026.
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