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How Limited Recourse Borrowing Arrangements (LRBAs) actually work

A superannuation fund is normally forbidden from borrowing. The Limited Recourse Borrowing Arrangement (LRBA) is the narrow exception that lets a self-managed super fund (SMSF) take out a loan, and it is the only legal way for a fund to borrow to buy property.

The structure looks more complicated than a normal mortgage because it has to protect the rest of the fund. Once you see the parts, the logic is simple.

If you would rather have this handled end to end, our team arranges SMSF commercial property loans through the specialist lenders.

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What an LRBA is

An LRBA is a loan where the lender’s recourse is limited to a single asset. If the loan is not repaid, the lender can take that one property, but it cannot touch the fund’s other assets. That limit is the whole point: it ring-fences the members’ retirement savings from the loan.

The moving parts

Four elements work together in every LRBA.

Four elements work together in every LRBA.

The fund provides the deposit, makes the repayments from rent and contributions, and is the beneficial owner of the property from day one.

The holding trust and custodian

A separate trust, often called a bare trust or holding trust, holds the legal title to the property while the loan is on foot. Its trustee is the custodian. The SMSF holds the beneficial interest, which means it gets the rent and the growth even though the title sits in the holding trust.

The lender and limited recourse

The lender advances the loan and takes security over the single property only. Because its recourse is limited, it typically lends at a lower loan-to-value ratio (LVR) and a higher rate than a standard mortgage.

The single acquirable asset

Each LRBA can hold just one acquirable asset. If you buy a second property, it needs its own arrangement, its own holding trust and usually its own loan.

How the money and the title flow

The sequence is what keeps the arrangement valid, so it is worth following in order.

  • The fund and the holding trust are set up, and the loan is pre-approved.
  • The custodian, as trustee of the holding trust, signs the contract to buy the property.
  • The fund pays the deposit and costs; the lender funds the balance.
  • The holding trust holds legal title; the SMSF holds the beneficial interest and receives the rent.
  • The fund makes repayments over time from rent and contributions.
  • Once the loan is repaid, legal title can transfer from the holding trust to the SMSF.

What you can and cannot do

A few limits define what is possible while the loan is in place.

  • You can repair and maintain the property using the fund’s cash.
  • You cannot use borrowed money to improve the asset.
  • You cannot make changes that alter the fundamental character of the property, such as turning one title into several.
  • You cannot add a second property to the same LRBA.

The 2026 change and what it left open

The Treasury Laws Amendment (Tax Reform No. 1) Act 2026 amended the SMSF borrowing rules so that, from 10 August 2026, a fund can no longer enter a new LRBA to buy residential property. Existing residential arrangements are grandfathered and can still be refinanced. Commercial property, or business real property, is not affected, so an LRBA to buy your business premises works exactly as it did.

To size up how much a fund can borrow under this structure, see how much your SMSF can borrow.

Frequently Asked Questions (FAQs)

Why does the property sit in a separate trust?

The holding trust is what makes the recourse limited. Keeping the title separate while the loan is on foot lets the lender secure against that one asset without any claim over the rest of the fund.

Can one LRBA cover two properties?

No. Each arrangement is limited to a single acquirable asset. Buying a second property means a second LRBA with its own holding trust.

What happens when the loan is paid off?

Once the loan is repaid, the legal title can be transferred from the holding trust to the SMSF, usually without triggering stamp duty if it is done correctly. Your adviser will manage that step.

The Bottom Line

An LRBA lets an SMSF borrow to buy a single property while keeping the rest of the fund protected, using a holding trust to separate the title until the loan is repaid. The rules on improvements and single assets are strict, and the 2026 changes leave commercial borrowing fully open. For background on fund borrowing, the MoneySmart SMSF pages are worth a read.

This article is general information only. It does not take into account your objectives, financial situation or needs, and it is not financial, tax, legal or credit advice. SMSF rules are complex and change often. Speak with a licensed financial adviser, your accountant and an SMSF specialist before acting.