Top Tips to Use Your Super for a Smaller Dwelling in Goulburn

If you're considering using your Self-Managed Super Fund to purchase a smaller dwelling in Goulburn, you're working against a tight deadline.

On 23 June, the Australian Government confirmed that new Limited Recourse Borrowing Arrangements used by SMSFs to purchase residential property will be banned. The bill is expected to pass the Senate before parliament rises on 2 July, placing the effective ban date in mid-August. Contracts signed before the changes commence will not be affected, and existing arrangements are fully grandfathered. That means if you've been thinking about using your super to buy an investment property in Goulburn, the next six weeks are your last opportunity to lock in a contract.

What the Ban Means for Goulburn SMSF Trustees

The ban applies prospectively, so any residential property your SMSF already owns through an LRBA remains unaffected. These grandfathered properties retain concessional tax treatment, meaning 15% on rental income and an effective 10% CGT discount in accumulation phase. If your fund is currently negotiating a purchase, a 45-day transition period will apply for any investments in progress at the time the bill receives royal assent. The contract date is the relevant trigger, not settlement. That distinction matters if you're working through a slower conveyancing process or waiting on finance approval.

Commercial property LRBAs are unaffected by the ban, so if you're considering a mixed-use or commercial property instead, the usual rules still apply.

How the LRBA Structure Works for Residential Property

An LRBA allows your SMSF to borrow money to purchase a single property, which is held in a separate bare trust until the loan is repaid. The lender can only claim the property asset, not other SMSF assets, which is why it's called limited recourse. Each loan covers a single property in a separate bare trust, so two properties requires two separate arrangements. The property must meet the sole purpose test, meaning it exists purely to generate retirement benefits for fund members. Personal use is not permitted, and you cannot use the LRBA to fund structural improvements or anything that changes the fundamental character of the property while the loan is outstanding. Repairs and maintenance are permitted, but structural changes such as adding a granny flat are not.

Consider a trustee in Goulburn who identifies a two-bedroom unit near the hospital precinct. The fund has $120,000 in cash, and the trustee negotiates a contract at a price that allows a 30% deposit. The remaining 70% is borrowed through an LRBA with a non-bank lender. The property is held in a bare trust, rental income flows to the fund and is taxed at 15%, and repayments are made from a combination of rental income and existing fund contributions. Once the loan is repaid, legal title transfers from the bare trust to the SMSF. The fund's cash buffer is maintained at around 8% of the asset value to cover periods of vacancy or unexpected repairs, which lenders now scrutinise closely.

Deposit Requirements and Lender Appetite Before the Deadline

Non-bank and specialist lenders have been offering LVRs up to 80% for residential property in recent months, up from the historically conservative range of around 60-70%. In practice, most lenders are now offering between 70% and 75% for residential purchases, depending on the fund's liquidity and the property type. That means a typical SMSF property loan requires a deposit of 25% to 30%, plus a cash buffer.

Lenders are now scrutinising post-settlement liquidity more than previously. Funds must demonstrate a cash buffer, often 5-10% of the asset value, to cover unforeseen expenses and maintain LRBA integrity. If your fund has limited cash reserves beyond the deposit, expect lenders to ask detailed questions about contribution capacity, rental yield assumptions, and how the fund will manage a period of vacancy. In Goulburn's rental market, where vacancy rates are typically lower than in larger regional centres, the rental yield argument is easier to make, but you'll still need the numbers to back it up.

New Trustee Training and Compliance Obligations

New rules require trustees, both new and existing, to complete certified training covering LRBAs, related-party transactions, cash flow planning, and compliance obligations. Non-compliance may result in penalties of up to $19,800, or even fund disqualification. If you're setting up an LRBA for the first time, factor in the time required to complete this training before settlement. SMSFs with borrowing arrangements face heightened data-matching and transaction-monitoring, and trustees must ensure rigorous record-keeping. The ATO is paying closer attention to LRBAs than it has in previous years, particularly around related-party transactions and whether loan terms are on an arm's length basis.

For the 2025-26 financial year, the safe harbour interest rate for LRBAs used to acquire real property is 8.95%, down from 9.35% the previous year. These rates apply to related-party LRBAs to ensure loan terms are on an arm's length basis. If your SMSF is borrowing from a related party, the loan must be structured to meet the safe harbour conditions, or you'll need to demonstrate that the terms are equivalent to what an independent lender would offer.

What Happens to Existing LRBAs After the Ban

Existing residential LRBAs are fully grandfathered, including for future refinancing. However, whether a refinance of an existing residential LRBA is treated as a new LRBA is not yet settled by the ATO. Trustees should not restructure unnecessarily until specific legal advice has been obtained, as acting without clarity could inadvertently breach the new rules and put the fund's grandfathered status at risk. If you're planning to refinance an existing SMSF residential loan in the next few years, wait for the ATO to clarify its position before making any changes. The risk of losing grandfathered status is not worth the potential rate saving.

If your fund already owns a residential property through an LRBA, the concessional tax treatment remains in place. Rental income is taxed at 15%, and when the property is eventually sold, the CGT discount applies in accumulation phase. The property continues to meet the sole purpose test as long as it's generating retirement benefits for fund members and not being used for personal purposes.

Should You Consider Commercial Property Instead?

Commercial property LRBAs are unaffected by the 23 June ban, and non-bank lenders are offering LVRs up to 80% for commercial property investments. For commercial property, LVRs typically range between 65% and 75% depending on the asset class, such as industrial versus retail. If you're a business owner in Goulburn and your SMSF has sufficient funds, purchasing the premises your business operates from can be a tax-effective strategy. The business pays rent to the fund, the fund receives concessional income, and the property is held as a long-term retirement asset.

SMSFs are restricted from holding more than 5% of their total assets in in-house assets, which includes investments in related parties or loans to them. Property leased to a related party falls into this category unless exceptions apply. Business real property is one of those exceptions, so your SMSF can lease commercial premises to your own business without breaching the in-house asset rules, as long as the property is used wholly and exclusively in a business. This makes SMSF loans for commercial property an option worth considering if residential property is no longer available.

If you're weighing up whether to proceed with a residential purchase in the next few weeks or pivot to a commercial property strategy, the decision depends on your fund's balance, your contribution capacity, and your long-term investment goals. Call one of our team or book an appointment at a time that works for you to talk through your options before the deadline passes.

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