Can an SMSF Still Buy Residential Property Without an LRBA? Yes
The Ungeared Unit Trust Strategy
How an SMSF and its members can potentially combine superannuation savings and home equity through a fixed, ungeared unit trust
The SMSF property landscape changed significantly on 10 August 2026.
From that date, a new Limited Recourse Borrowing Arrangement, or LRBA, generally cannot be used by an SMSF to acquire ordinary residential real property. New SMSF LRBAs involving real property are now effectively restricted to business real property, subject to transitional rules for qualifying pre-existing arrangements.
That does not mean an SMSF can no longer invest in residential property.
An SMSF can still potentially:
- purchase residential property outright for cash;
- invest through certain unrelated investment structures; or
- invest alongside its members through a properly structured fixed, ungeared related unit trust that satisfies Regulation 13.22C of the Superannuation Industry (Supervision) Regulations 1994.
For some investors, this third option may become increasingly important.
The strategy can potentially combine:
superannuation savings + personal home equity
without either the SMSF or the property-owning unit trust borrowing money.
To illustrate how it may work, consider Jess and Chris.
Meet Jess and Chris
Jess and Chris are a hypothetical Australian couple.
Their principal place of residence is worth approximately:
$1,200,000
with an existing private home loan of:
$400,000
leaving approximately:
$800,000 of home equity.
They also have approximately:
$700,000 of combined superannuation savings.
They may already have an SMSF containing that $700,000.
Alternatively, their super may still be held in industry or retail super funds, and they may be considering establishing an SMSF and rolling over some or all of their existing benefits.
They should never make that decision simply because they want to buy property.
Before establishing an SMSF, they should consider:
- whether an SMSF is suitable;
- ongoing accounting, audit and administration costs;
- trustee responsibilities;
- insurance that may be lost when leaving another super fund;
- investment diversification;
- liquidity;
- retirement objectives;
- pension requirements; and
- whether licensed financial advice is required.
For this example, assume Jess and Chris either already have, or appropriately establish, an SMSF with approximately $700,000.
They would like to acquire an:
$800,000 residential investment property.
Before the 2026 changes, they may have considered:
$400,000 SMSF cash
plus
$400,000 SMSF LRBA
to acquire the property.
That strategy is generally no longer available for a new residential property acquisition.
However, another structure may potentially work.
The alternative: a fixed, ungeared 13.22C unit trust
For illustration:
Jess & Chris SMSF — 50% of the units
Jess & Chris personally — 50% of the units
The unit trust then purchases the residential property for cash.
The important distinction is:
The SMSF does not borrow.
The unit trust does not borrow.
Jess and Chris may borrow personally.
The unit trust owns 100% of the property.
Jess, Chris and their SMSF own units in the trust, giving them fixed proportional economic entitlements to the trust’s income and capital.
Does it have to be 50/50?
No.
The 50/50 split is only used because it makes the example easy to follow.
Depending upon available capital and the overall strategy, the ownership could potentially be:
- SMSF 60% / personal 40%;
- SMSF 70% / personal 30%;
- SMSF 80% / personal 20%; or
- another properly determined fixed proportion.
The appropriate split may depend upon:
- cash available in the SMSF;
- how much liquidity should remain in the fund;
- how much Jess and Chris want or are able to borrow personally;
- cash-flow capacity;
- land tax;
- retirement objectives;
- member ages;
- pension requirements; and
- investment diversification.
The economic interests should be properly documented through the fixed units actually issued.
How could the $800,000 purchase be funded?
An $800,000 property usually requires more than $800,000 of cash.
The trust must also fund items such as:
- stamp duty or transfer duty;
- conveyancing;
- searches;
- building and pest inspections;
- unit trust establishment costs; and
- initial property expenses.
Assume total acquisition costs of approximately $40,000 for illustration only.
The trust therefore needs:
| Funding requirement | Amount |
|---|---|
| Property | $800,000 |
| Illustrative acquisition costs | $40,000 |
| Total equity required | $840,000 |
If Jess and Chris use a 50/50 structure:
| Investor | Contribution |
|---|---|
| SMSF | $420,000 |
| Jess & Chris personally | $420,000 |
| Total | $840,000 |
The unit trust then purchases the property without borrowing.
If the SMSF started with $700,000, it would still retain approximately $280,000 in cash and other investments.
That remaining liquidity is important for diversification, tax, administration costs, future property expenses and pension obligations.
How Jess and Chris could use their home equity
Jess and Chris’s home is worth $1.2 million with a $400,000 existing private mortgage.
They might obtain a separate:
$400,000 investment loan
secured against their home.
Their total home-secured debt becomes approximately:
| Debt | Amount |
|---|---|
| Existing private home loan | $400,000 |
| New investment loan | $400,000 |
| Total | $800,000 |
| Home value | $1,200,000 |
| Approximate combined LVR | 66.7% |
Whether the lender approves this depends upon serviceability and credit policy.
From an income-tax perspective, the fact that the PPR is the security does not automatically make the interest private.
The key issue is what the borrowed funds are used for.
Jess and Chris should ideally establish a separate investment loan split and use those funds directly to acquire their units.
They should avoid mixing private and investment expenditure in the same loan.
Jess and Chris must buy units — not lend money to the trust
This is critical.
Jess and Chris should not do this:
Jess & Chris → $400,000 loan → Unit Trust
because that would create borrowing inside the trust.
Instead:
Jess & Chris → subscription for fixed units → Unit Trust
and:
SMSF → subscription for fixed units → Unit Trust
The money becomes equity capital of the trust.
It is not a debt owed by the trust.
That distinction is fundamental.
Why doesn’t the 5% in-house asset rule stop this?
Normally, an SMSF investment in a related unit trust is an in-house asset.
An SMSF is generally limited to having no more than 5% of its assets invested in in-house assets.
Jess and Chris control their SMSF and also own units in the same trust personally.
Without a special exemption:
$420,000 SMSF investment ÷ $700,000 fund assets = 60%.
That would clearly exceed the normal 5% limit.
However, Regulation 13.22C provides a specific carve-out.
Where the relevant conditions are satisfied, the SMSF’s investment in the related unit trust is excluded from the in-house asset rules.
That legal mechanism makes the structure possible.
It is not simply because the trust has no debt.
Being ungeared is one important condition, but the trust must satisfy a much broader regulatory framework.
What does a 13.22C trust need to do?
The expression “ungeared unit trust” can be misleading because it suggests the only requirement is that the trust has no bank loan.
The trust must be a tightly controlled, passive investment structure.
Key requirements include the following.
No borrowings
The trust cannot have:
- a bank loan;
- an overdraft;
- a loan from Jess or Chris;
- a loan from the SMSF; or
- another outstanding borrowing.
No mortgage or charge over trust assets
Jess and Chris’s personal lender may have security over their PPR.
However, the residential investment property held by the unit trust should remain unencumbered.
No prohibited lending
The trust should not lend money to Jess, Chris, their business, another family trust or other associated entities.
No investments in other entities
The trust generally should not acquire shares, units in another trust or interests in another entity.
For this type of arrangement, the structure should remain simple:
13.22C unit trust → property + bank account
It cannot conduct a business
The trust should remain a passive investment vehicle.
Long-term ownership of a residential rental property may be consistent with that objective.
Repeated property development, property flipping or trading activity could create a very different compliance issue.
No related-party residential use
Jess and Chris cannot use the arrangement to provide residential accommodation to themselves or related parties.
The property should not ordinarily be rented to:
- Jess or Chris;
- their children;
- parents;
- relatives; or
- other related parties.
The business real property exception that can apply to commercial property does not ordinarily assist with residential property.
Generally, no related-party residential acquisition
For this strategy, the residential property should ordinarily be purchased from an unrelated third-party vendor.
Arm’s-length dealings are essential
Rent, unit issues, expenses, valuations and other transactions should all occur on commercial terms.
Regulation 13.22C gets you in — Regulation 13.22D keeps you there
A useful way to understand the rules is:
Regulation 13.22C
Sets the conditions for the SMSF’s investment to qualify for the exemption.
Regulation 13.22D
Contains subsequent events that can cause that exemption to be lost.
This means compliance matters beyond the trust’s establishment.
It must continue for as long as the SMSF holds the investment.
A seemingly minor mistake — such as an overdraft, prohibited loan, charge over trust assets, or non-arm’s-length transaction — can have serious consequences.
That is one reason these trusts require disciplined administration and professional oversight.
How might the rental cash flow work?
Assume the $800,000 property rents for:
$800 per week
Annual gross rent:
$41,600
Assume the trust incurs:
| Property cash flow | Amount |
|---|---|
| Gross rent | $41,600 |
| Property management | ($3,000) |
| Council/water | ($3,200) |
| Insurance | ($1,500) |
| Repairs | ($2,500) |
| Illustrative land tax | ($2,000) |
| Other costs | ($1,000) |
| Net property cash flow | $28,400 |
There is one major expense missing:
interest.
The unit trust has no debt.
Under a 50/50 structure, the approximate cash entitlement becomes:
| Unit holder | Share |
|---|---|
| SMSF | $14,200 |
| Jess & Chris personally | $14,200 |
Actual taxable income may differ because of depreciation, Division 43 deductions and other tax adjustments.
The gearing sits on Jess and Chris’s personal side
Assume Jess and Chris borrow:
$400,000
at:
6.50%
Annual interest:
$26,000
Their approximate personal cash position becomes:
| Personal side | Amount |
|---|---|
| Trust cash entitlement | $14,200 |
| Investment interest | ($26,000) |
| Cash shortfall before tax | ($11,800) |
So the property-owning trust itself is positively geared.
Jess and Chris personally are negatively geared because they borrowed to acquire their units.
Negative gearing from 1 July 2027
For 2026–27, subject to the normal deduction rules, personally incurred interest associated with acquiring income-producing units may still be immediately deductible.
However, from 1 July 2027, the new residential negative-gearing regime becomes important.
For certain established residential properties, excess residential deductions may no longer be immediately deductible against unrelated income such as salary and wages.
Instead, those excess deductions may be quarantined and carried forward.
Importantly, the rules include provisions dealing with residential income received through trusts.
Therefore, Jess and Chris should not assume that borrowing personally to acquire units automatically avoids the new residential negative-gearing restrictions.
The economic cash shortfall remains real even if the tax deduction is quarantined.
This means cash-flow modelling becomes particularly important from 2027–28 onwards.
Qualifying new residential dwellings may receive different treatment, so consider the distinction between an established property and a qualifying new dwelling before signing a contract.
Land tax needs to be modelled state by state
Land tax could materially affect the strategy.
The unit trust legally owns the property.
However, different states apply very different trust and land-tax rules.
For example:
Queensland
Land held by an ordinary trustee is generally assessed under trustee rates and thresholds.
New South Wales
The treatment of a fixed trust is particularly important. A trust that satisfies the NSW fixed-trust requirements can receive different land-tax treatment from a special trust.
Victoria
Victoria has specific trust surcharge rules and can also take account of disclosed unit holders.
South Australia
South Australia has its own unit trust and nominated beneficiary/unit holder provisions.
Western Australia, Tasmania and the ACT also have separate regimes.
The Northern Territory does not currently impose a general annual land tax in the same way as the states.
Therefore:
The unit trust deed and ownership percentages should be considered alongside the land-tax rules of the state where the property will be purchased.
The $2,000 land-tax figure in the worked example is purely illustrative.
What if the property later needs renovations?
A 13.22C trust cannot simply take out a renovation loan.
Suppose $60,000 is required.
Under a 50/50 ownership model, further funding might instead occur through additional equity subscriptions, for example:
SMSF — $30,000
Jess & Chris — $30,000
subject to valuation, documentation and SIS considerations.
This is another reason to retain sufficient liquidity from the outset.
Why this strategy may become increasingly relevant
Many Australians have wealth concentrated in two places:
- their superannuation; and
- the equity in their family home.
Following the restriction on new residential SMSF LRBAs, those investors may need to think differently.
A properly structured fixed, ungeared 13.22C unit trust can potentially combine those two pools of capital without the SMSF borrowing.
For Jess and Chris, the strategy could look like this:
SMSF
$420,000 cash
↓
50% fixed units
Jess & Chris personally
$400,000 investment loan secured against PPR
- $20,000 cash
↓
50% fixed units
↓
Fixed, Ungeared Regulation 13.22C Unit Trust
Approximately $840,000 equity
↓
$800,000 residential investment property
plus acquisition costs
↓
Rented to unrelated tenants
with:
no borrowing inside the SMSF
and
no borrowing inside the unit trust.
Final takeaway
The end of new residential SMSF LRBAs does not mean the end of SMSF residential property investment.
For suitable investors, a properly structured:
fixed, ungeared Regulation 13.22C unit trust
may allow an SMSF to invest alongside its members.
The percentages do not need to be 50/50.
They may potentially be 60/40, 70/30 or another properly determined fixed proportion.
The important elements are that:
the SMSF contributes equity;
the members contribute equity;
the unit trust remains ungeared;
any personal borrowing remains outside the trust; and
the trust continues to satisfy the 13.22C and 13.22D requirements.
Investors considering this strategy should review the structure before signing a property contract.
Investors should consider the SMSF position, trust deed, personal borrowing, stamp duty, land tax, negative gearing, cash flow, liquidity, and retirement objectives together.
The question for many investors may therefore no longer be:
“Can my SMSF borrow enough to buy this residential property?”
It may instead be:
“Can we combine our SMSF capital and personal equity through a compliant fixed, ungeared unit trust without the SMSF borrowing at all?”
For some investors, that could create a very different pathway into residential property.
FAQ section for SEO
Adding a short FAQ near the bottom would help pick up question-based searches.
Can an SMSF invest in a unit trust with its members?
Potentially yes. A qualifying related unit trust can fall outside the normal SMSF in-house asset limits where the requirements of Regulation 13.22C are satisfied and ongoing Regulation 13.22D requirements are observed.
Does an SMSF have to own 50% of the unit trust?
No. The 50/50 structure is only an example. The SMSF and personal investors may potentially hold different fixed proportions, such as 60/40 or 70/30, depending on the circumstances.
Can individuals borrow against their home to buy units?
Potentially yes. The personal borrowing must remain outside the SMSF and unit trust, with the borrowed money used to subscribe for the individuals’ units.
Can the unit trust borrow money?
No, not if the structure is relying on the Regulation 13.22C exemption. The trust must remain ungeared and must also comply with the other regulatory requirements.
Can the unit trust buy residential property?
Potentially yes, provided the SIS requirements are satisfied and the residential property is not used by members or other related parties.
Why isn’t the SMSF caught by the 5% in-house asset rule?
Because Regulation 13.22C provides a specific exclusion from the in-house asset rules where all qualifying requirements are met.
General information only. This article does not constitute personal financial product advice, legal advice, credit advice or advice that a particular SMSF or property investment is suitable for you. SMSF, income tax, CGT, land tax and transfer duty outcomes depend upon individual circumstances, the trust deed, property location and legislation applying at the relevant time. Obtain appropriate SMSF, taxation, legal, financial and lending advice before proceeding.