SMSF Rule Changes in 2026: What Trustees Need to Know About Property, Division 296 and the New Caps
August 12, 2026
If you run a self-managed super fund, 2026 has delivered more change in a single year than the sector has seen in some time. Two of those changes are genuinely significant: new restrictions on borrowing to buy property, and a new tax on large super balances. There’s also a reworked way of calculating total super balance, higher contribution caps, and Payday Super reshaping how contributions land in your fund.
Here’s a plain-English rundown of what’s changed and what you should be doing about it.
The big one: borrowing to buy residential property
This is the change generating the most noise, and it’s worth being precise about what it does and doesn’t do.
Under the Treasury Laws Amendment (Tax Reform No. 1) Act 2026, which received Royal Assent on 26 June, any limited recourse borrowing arrangement (LRBA) entered into on or after 10 August 2026 to buy real property can only be used to acquire business real property — broadly, land and buildings used wholly and exclusively in a business.
A few things people are getting wrong:
LRBAs haven’t been banned. Your fund can still borrow under an LRBA. The restriction is specific to real property, which now has to be business real property. Other permitted borrowing exceptions are untouched, and the mechanics of how LRBAs operate haven’t changed.
Your SMSF can still own residential property. What it can’t do is borrow to buy it. If the fund has the cash and the investment stacks up against your strategy and the usual regulatory rules, an outright purchase of residential property remains available.
It applies to every lender. Bank, non-bank, or a related-party loan from you personally — it makes no difference. The identity of the lender doesn’t change the requirement.
Existing arrangements are safe. The new rules don’t touch an LRBA entered into before 10 August 2026, and they don’t bite when you refinance one afterwards (including with a new lender). Importantly, if your fund exchanged a binding contract before 10 August, you’re also outside the new rules — even if finance is approved and settlement happens later. The ATO’s own example runs through an off-the-plan purchase contracted before the cut-off and settled twelve months later, and confirms the old rules apply.
The property has to stay business real property. This is the trap. The asset must be business real property when the LRBA is entered into and for the entire life of the loan. If it stops being used wholly and exclusively in a business, the fund has breached the borrowing prohibition and compliance action can follow. Hunting for a new commercial tenant won’t cause a problem, but abandoning plans to lease the property will.
One nuance worth flagging: residential property that genuinely qualifies as business real property can still be financed under an LRBA. Farm land with a dwelling on it, for instance, can meet the test where the dwelling sits on no more than two hectares and the main use of the whole property isn’t domestic or private.
If you were contemplating a geared residential purchase, that window has closed. If you have an existing LRBA, nothing changes — but keep your documentation tidy, because grandfathering only helps if you can evidence the contract or loan date.
Division 296: the new tax on large balances
Division 296 is now law and applies from 1 July 2026, so the 2026–27 year is the first one that counts.
It imposes an extra 15% on the portion of your taxable super earnings attributable to the part of your total super balance above the large super balance threshold of $3 million. A further 10% applies to the component above the very large super balance threshold of $10 million. Both thresholds are indexed to CPI — the $3 million figure in $150,000 steps, the $10 million figure in $500,000 steps.
For 2026–27 only, transitional rules mean the ATO looks solely at your TSB at 30 June 2027. From 2027–28 onwards, it tests your balance both at the start and the end of the year. Anyone who dies during 2026–27 is never liable.
The tax is assessed to you personally, not the fund, and is due 84 days after the assessment issues. You can pay it yourself or elect within 60 days to have money released from a fund. Assessments for the first year won’t start appearing until the second half of the 2027–28 year.
For trustees, the practical burden is reporting. Your SMSF calculates its Division 296 fund earnings — an adjusted amount of the fund’s taxable income — attributes a share to affected members, and reports that in the SMSF annual return from 2026–27 onwards. In most cases an actuary will need to be engaged to work out the attribution. If you don’t report it, the ATO will tell you who your in-scope members are and you’ll be amending the return.
There’s also a one-off election worth understanding. An SMSF can choose to reset the cost base of its CGT assets to market value as at 30 June 2026 for Division 296 purposes, so accrued value from before the tax started isn’t caught. The election covers all the fund’s CGT assets, must be made by the due date of the 2026–27 annual return in the approved form, and cannot be revoked. You don’t lodge it with the ATO, but you must keep detailed cost base records. This is a decision to model carefully rather than default into.
Finally, note that outstanding LRBA amounts are disregarded when working out your TSB for Division 296 purposes — even though they now count for other purposes.
Total super balance is calculated differently
From 30 June 2026, TSB is the value of your Australian super interests, plus any rollover benefit not already captured, plus outstanding LRBA amounts, less any personal injury or structured settlement contributions. Interests in foreign super funds are now excluded.
Because TSB drives eligibility for so much — non-concessional contributions, bring-forward, the government co-contribution, spouse contributions — this quietly affects more members than Division 296 does.
The 2026–27 numbers
| Measure | 2025–26 | 2026–27 |
|---|---|---|
| Concessional cap | $30,000 | $32,500 |
| Non-concessional cap | $120,000 | $130,000 |
| General transfer balance cap | $2 million | $2.1 million |
| Defined benefit income cap | $125,000 | $131,250 |
| Super guarantee | 12% | 12% |
The three-year bring-forward is now up to $390,000, though how much you can actually use depends on your TSB at the previous 30 June — and your non-concessional cap is nil if your TSB was at or above the general transfer balance cap. Carry-forward concessional contributions remain available where your TSB was under $500,000.
Payday Super and your fund
From 1 July 2026 employers must pay super every payday rather than quarterly, and SG is now calculated on qualifying earnings for each payday. The maximum contribution base has shifted from a quarterly figure to an annual one — $270,830 for 2026–27.
For SMSFs receiving employer contributions, two housekeeping items matter more than they used to. Your fund needs a bank account reachable via the New Payments Platform and an active electronic service address. And your fund needs to show as complying on Super Fund Lookup — overdue annual returns can flip that status, at which point employer payroll systems and clearing houses may simply refuse to pay into your fund and redirect the money to a default fund. Late lodgment now has immediate, visible consequences.
To be clear on one point the ATO has had to repeat: the 28-day window after month end for your fund to allocate or reject a contribution hasn’t changed.
What the ATO is watching
The regulator’s 2026–27 auditor program is focused heavily on market valuations and whether auditors have obtained sufficient objective evidence to support them. That focus sharpens considerably where a valuation could tip a member over the Division 296 threshold. Asset ownership, existence and valuation evidence, auditor independence, and record keeping are all in scope.
In practice this means your auditor is going to ask harder questions this year, particularly about unlisted assets, property and anything valued on a director’s estimate. Getting valuation evidence organised early will save you time and cost.
A short to-do list for trustees
Check whether any property purchase you’re planning is caught by the 10 August cut-off, and if you have an existing LRBA, file the evidence of when it was entered into. Review your investment strategy if gearing into residential property was part of the plan. Estimate where your 30 June 2027 balance is likely to land if you’re anywhere near $3 million, and start the conversation about the CGT cost base election. Line up market valuations with proper supporting evidence. Confirm your fund’s ESA and bank account are Payday Super ready, and make sure lodgments are current so your Super Fund Lookup status stays clean. Finally, revisit your contribution plan against the higher caps.
Talk to us
Several of these changes involve one-way doors — the CGT cost base election can’t be reversed, and a property strategy built on borrowing may need rebuilding entirely. If you’d like to work through what applies to your fund, get in touch with the team at Brick Road Accounting.
This article contains general information only and does not take into account your objectives, financial situation or needs. It is not financial product advice. Rules and thresholds are current as at August 2026 and may change. Please seek advice tailored to your circumstances before acting.
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