Top Strategies to Buy Units Using Your SMSF in Epping

Self-managed super funds can still borrow to buy property, but the rules changed substantially in August when residential LRBAs were restricted.

The change affects any SMSF looking to borrow for a unit in Epping or elsewhere, because most units are residential. If you exchanged a contract before 10 August, you can still settle and draw down under an LRBA. If you already have a residential LRBA in place, you can refinance it. But you cannot enter a new LRBA to buy a residential unit from that date forward. The restriction applies whether the lender is a bank, a non-bank lender, or a related party. Your fund can still own residential property. It just cannot borrow to acquire it.

What Changed on 10 August and What Did Not

The Treasury Laws Amendment (Tax Reform No. 1) Act 2026 inserted a new condition into the SIS Act that restricts real property LRBAs to business real property only. LRBAs themselves are not banned. Your SMSF can still borrow to acquire an asset under a Limited Recourse Borrowing Arrangement, but if that asset is real property, it must now meet the definition of business real property under section 66 of the SIS Act.

This means residential units in Epping fall outside the scope of new LRBAs. A typical two-bedroom apartment in one of the developments near the station, leased to a tenant on a residential lease, does not qualify as business real property because it is not used wholly and exclusively in one or more businesses. The property's zoning or description does not determine this. Actual use does.

If your fund already owns a unit under an existing LRBA, nothing changes. You can continue to hold it, continue making loan repayments, and refinance the loan to another lender without triggering the new restrictions. The changes do not apply retrospectively.

Can You Still Buy a Unit With Your SMSF

Your fund can acquire a residential unit without borrowing, subject to the usual SIS Act rules. You cannot buy it from yourself or a related party, and no member or related party can live in it. If your fund has accumulated enough capital to purchase outright, or if you can make periodic contributions to build the balance needed, residential property remains an option.

Consider a fund with two members, both in their late 40s, with a combined balance of $480,000. The median unit price in Epping sits in the mid-$600,000 range. If both members contribute the full concessional cap of $32,500 each year, the fund would accumulate roughly $65,000 annually before tax and investment returns. Over two years, combined with investment returns on the existing balance, the fund may reach a position to acquire a unit without borrowing. The timeline depends on contribution capacity, existing balance, and market conditions.

This approach removes loan interest and the holding trust structure, but it requires patience and sufficient contribution room. Members with balances approaching the general transfer balance cap of $2.1 million need to consider whether further contributions are feasible or whether they trigger non-concessional contribution restrictions.

How Business Real Property LRBAs Still Work

Business real property LRBAs were not affected by the August changes. If the unit you want to acquire is used wholly and exclusively in a business, and that use continues at the time of acquisition, it may qualify. The business does not need to be carried on by the fund or the member. A commercial office, a medical consulting suite, or a retail tenancy can all qualify, provided the actual use meets the definition.

A unit in one of the mixed-use developments around Epping town centre might include ground-floor commercial tenancies and residential apartments above. The commercial tenancy may qualify as business real property if it is leased for a business use and the lease reflects that. The residential component does not.

Where a property has both residential and commercial elements, the ATO looks at whether the property is used wholly and exclusively in one or more businesses. A property with a residential dwelling attached generally fails this test unless it falls within the primary production concession, which does not apply to urban units in Epping. Mixed-use properties require specific assessment, and if in doubt, seek advice from a licensed SMSF specialist before proceeding.

What the LRBA Structure Requires

An LRBA must meet several conditions to comply with the SIS Act. The borrowed money must be used to acquire a single asset. Multiple unit titles cannot be acquired under one LRBA unless they are distinctly identifiable as a single asset, meaning they have equal market value and are bought and sold together. In practice, this exception rarely applies to separate residential units.

The asset must be held in a separate holding trust. The SMSF acquires a beneficial interest in the asset and obtains legal ownership after the loan is repaid. The holding trust cannot be a discretionary trust. If the loan defaults, the lender's recourse is limited to the asset held in the trust. No other fund assets are at risk.

Borrowed funds can cover the purchase price, loan establishment costs, and stamp duty. They cannot be used to improve an existing asset. If your fund already owns a property, you cannot place it into an LRBA or draw down additional funds for renovations under the existing LRBA structure.

What Happens If You Refinance an Existing Residential LRBA

Refinancing an existing residential LRBA does not trigger the post-commencement restrictions. The ATO considers refinancing to mean entering a new loan contract for the same asset, with the same or a new lender. If your fund has a compliant LRBA in place before 10 August, you can refinance to another lender without being subject to the new rules.

A significant change to the terms or conditions of the LRBA may end the arrangement and start a new one. This includes borrowing to acquire an asset not contemplated under the original arrangement or changes to the ultimate beneficiaries. A new arrangement entered on or after 10 August that involves residential property cannot proceed under the restricted rules.

If your existing lender offers a lower rate or you want to move to a lender with offset account features, refinancing remains an option. The refinanced loan must relate to the same single asset, maintain the limited recourse character, and meet arm's length terms. The ATO publishes safe harbour interest rates under Practical Compliance Guideline PCG 2016/5, updated annually. Income from an arrangement that does not meet arm's length terms may be taxed at 45 percent as non-arm's length income.

CGT and Division 296 Tax Considerations for Unit Sales

A complying SMSF is taxed at 15 percent on assessable income, including net capital gains. Where an asset has been held for at least 12 months, a one-third CGT discount may apply, which can produce a maximum effective rate of 10 percent on the discounted gain. The actual tax depends on the property's cost base, acquisition and selling costs, capital improvements, capital works deductions, capital losses, and the fund's overall position for that year.

Where the fund's assets are fully segregated as current pension assets at all times during the income year, a capital gain on disposal is disregarded. From the 2022 financial year, where all of a fund's assets are paying retirement phase pension benefits at all times, the assets are regarded as segregated. Where the fund uses the proportionate method, the exemption applies only to the exempt proportion of the net capital gain, determined by an actuarial certificate.

From 1 July, Division 296 tax of 15 percent applies to the proportion of earnings attributable to total superannuation balances above $3 million, and an additional 10 percent applies above $10 million. Both thresholds are indexed in increments of $150,000 and $500,000 respectively. A capital gain must be realised through a CGT event to form part of Division 296 fund earnings. An unrealised increase in unit value does not constitute a CGT event. LRBA amounts are disregarded when calculating a member's total superannuation balance for Division 296 purposes.

An SMSF may elect to adjust the cost base of its CGT assets to market value as at 30 June for Division 296 purposes. This election recognises accrued value prior to the commencement of Division 296 tax, applies to all CGT assets held directly at 30 June, cannot be revoked, and must be made by the due date of the annual return.

How to Compare SMSF Lenders After the Rule Change

Lenders that offered residential SMSF loans before August have updated their policies to reflect the restriction. Some lenders have withdrawn from residential LRBAs entirely. Others continue to offer loans for business real property or refinancing of existing arrangements. If you are refinancing an existing residential LRBA or looking to establish a commercial LRBA, compare SMSF lenders based on interest rate, loan-to-value ratio, offset account availability, and whether they require a personal guarantee.

Loan-to-value ratios for SMSF loans are generally lower than for standard residential lending. A maximum LVR of 70 to 80 percent is common, meaning a deposit of 20 to 30 percent is required. Some lenders set lower limits depending on the property type and location. Interest rates for SMSF loans are typically higher than standard home loan rates, reflecting the additional compliance and structural requirements.

If you are borrowing from a related party, the loan must meet arm's length terms. The ATO's safe harbour rates provide a benchmark. A loan that does not meet these terms may result in income being taxed at 45 percent. A related party can provide a personal guarantee to a third-party lender, but their recourse must be limited to the asset under the arrangement and not any other SMSF assets.

Sole Purpose Test and Rental Income

Every SMSF investment, including property held under an LRBA, must satisfy the sole purpose test under section 62 of the SIS Act. The fund must be maintained solely to provide retirement benefits to members. Leasing a unit to a related party is permitted where the property qualifies as business real property and the lease is made on arm's length terms at market value. A residential unit cannot be leased to a member or related party under any circumstances.

Rental income from a residential unit held in accumulation phase is taxed at 15 percent. Rental income from a unit supporting a pension is tax-free where the fund's assets are fully segregated or proportionately exempt based on an actuarial certificate. Expenses including loan interest, property management fees, council rates, strata levies, and repairs are deductible against rental income. Capital works deductions may also apply depending on the age and construction of the building.

Epping has a high proportion of medium-density housing and apartment developments, particularly around the train station and along the western side of the suburb near the hospital precinct. Rental yields vary depending on the building, age, and proximity to transport. A two-bedroom unit within walking distance of Epping station attracts strong tenant demand, but strata levies in some of the newer developments can be high. Factor these ongoing costs into your borrowing capacity and cashflow projections before committing to a purchase.

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