Planning to Buy Through Your SMSF? The 10 August Borrowing Ban Changes Your Structure Decision

If your plan was to gear a new build through your self managed super fund, that door closed on 10 August 2026. Under the Treasury Laws Amendment (Tax Reform No. 1) Act 2026, an SMSF limited recourse borrowing arrangement (LRBA) entered into on or after that date can only be used to acquire real property that is business real property (ATO). Residential investment property no longer qualifies. The structure question is no longer “trust or SMSF?” It is “which structure can still do the job I need it to do?”

The Problem: A Strategy Built on Leverage Just Lost Its Vehicle

For a decade, the SMSF pitch to high income professionals was simple: use super contributions as the deposit, borrow the rest inside the fund, and let tenants and tax concessions repay the loan. Remove the LRBA and the SMSF becomes a cash buyer only.

What the ATO has confirmed about the change:

• Pre 10 August LRBAs are unaffected. Existing arrangements do not need to be unwound, and refinancing them is not affected.

• Contracts exchanged before 10 August can proceed, even if settlement or the LRBA occurs afterwards.

• New residential purchases cannot be geared inside an SMSF. The fund can still buy residential property with its own cash, subject to the sole purpose test and related party rules.

At the same time, rates are rising. The RBA lifted the cash rate to 4.85% on 3 November 2026, its fifth increase this year, in a 6 to 3 vote, and now expects inflation to remain above 3 per cent for the coming year (RBA Media Release 2026-30). Every borrowing decision now carries a higher serviceability hurdle.

Structure Options Explained: What Each Vehicle Can Still Do

Treasury’s second reading speech on the same reforms confirms three points that matter for structure selection:

• New builds keep negative gearing. From the 2027 to 28 income year, losses on residential property bought after 7:30pm AEST on 12 May 2026 can only be deducted against residential property income. New builds, including dwellings constructed on vacant land, are exempt.

• SMSFs sit outside the negative gearing limits altogether, alongside widely held trusts.

• The CGT discount changes from 1 July 2027. The 50% discount is replaced by indexation with a 30% minimum tax on real gains. Owners of new builds can choose either method when they sell.

Here is how the two main vehicles compare for a land and build acquisition:

1. Discretionary or unit trust. Can borrow for residential property, can contract a vetted independent builder on titled land, and the new build exemption preserves deductibility. Trust losses generally cannot be distributed to beneficiaries; they are carried forward inside the trust.

2. SMSF. Cannot use a new LRBA for residential property. Can buy land and fund construction from its own cash, taxed at the concessional super rate. Growth comes from contributions and compounding, not leverage.

Worked Example: The Same $780,000 Package, Two Structures

The figures below are hypothetical and for illustration only. They are not market data.

Assumptions: titled land at $380,000, fixed price build contract at $400,000 (total $780,000), rent of $620 per week ($32,240 a year, a 4.13% gross yield), annual holding costs of $6,500 and an assumed investor rate of 6.50%.

Structure A: Trust, 80% LVR

• Deposit and costs funded by the investor: $156,000, plus stamp duty on the land and purchase costs

• Loan: $624,000, interest $40,560 a year

• Cash result before depreciation: rent $32,240, less interest and holding costs, equals a $14,820 annual shortfall

• Each further 0.25% rate rise adds $1,560 a year to holding cost

Structure B: SMSF, cash purchase

• Fund must hold the full $780,000 plus stamp duty and costs

• Net income: $32,240 less $6,500 equals $25,740, a 3.30% net return on cash

• Tax at 15% in accumulation phase: $3,861 a year

The trust controls the same asset with $156,000 of equity instead of $780,000. That gap is the leverage the LRBA used to provide inside super.

Decision Framework: Match the Structure to the Wealth Goal

Structure follows the outcome you are building towards. Apply this test:

• If your goal is to Build a Portfolio, choose a trust or personal names with borrowing. Leverage on titled land with a fixed price build is the engine; an unleveraged SMSF cannot scale at the same pace.

• If your goal is to Create Generational Wealth, lean towards a discretionary trust for distribution flexibility and succession control. Confirm how your state’s land tax applies to trusts first, as some states levy a trust surcharge.

• If your goal is to Retire Earlier or Create Passive Income and your fund already holds substantial cash, an SMSF cash purchase of a new build can deliver unleveraged rental income inside a concessionally taxed environment.

• If your goal is to Pay Down Debt Faster, avoid any structure that adds debt you cannot service at today’s 4.85% cash rate plus a buffer.

• If you are Not Sure Yet, model both structures on the same package before committing.

For most accumulating investors under 50, our directional view is clear: the trust plus land and build pathway now does the job the geared SMSF used to do, with the new build exemption keeping deductibility intact. The SMSF remains a valid cash vehicle for members close to retirement.

Your CPA Reminder

Trust deeds, SMSF investment strategies, land tax surcharges, contribution caps and the 2027 CGT transition are highly complex. Each interacts with your personal tax position. Before establishing or changing any structure, verify your situation with a Certified Practising Accountant (CPA) and a licensed financial adviser.

Key questions to take to that meeting:

1. Was any SMSF purchase contract exchanged before 10 August 2026?

2. What is my trust’s borrowing capacity at a cash rate of 4.85%?

3. How will the 2027 CGT changes apply to a new build held in each structure?

Next Steps: Sequence the Decision

1. Confirm your primary wealth goal from the framework above.

2. Ask your CPA to model the trust and SMSF outcomes on one land and build package.

3. Obtain lender serviceability for the trust structure before committing to land.

4. Secure titled land with a vetted independent builder on a fixed price contract.

What This Means for You: The SMSF gearing strategy for residential property is closed to new arrangements from 10 August 2026. If your plan relied on borrowing inside super, the structure needs to change, not the goal. For investors still building a portfolio, a trust funding a new build on titled land retains leverage, keeps negative gearing under the new build exemption and gives you a choice of CGT method on exit. An SMSF remains useful as a cash buyer for income focused members nearer retirement.

Ready to Rebuild Your Structuring Plan?

Book a Discovery Session and we’ll walk you through our Trust vs SMSF land and build structuring framework, using your numbers, then book a call to discuss which approach aligns with your tax position.

Disclaimer: Legacy Property Investments provides property sourcing and strategic property analysis. Any information provided is of a general nature and does not constitute financial, legal, taxation, or investment advice. We strongly recommend seeking independent professional advice from a licensed financial adviser, accountant, and solicitor before making any property investment decision. Past performance is not a reliable indicator of future performance. Investing in property involves risk, including the potential loss of capital.