How to Refinance an SMSF Loan in Accumulation vs Pension Phase

Refinancing an SMSF loan during accumulation phase follows different risk and compliance logic than refinancing during pension phase.

The decision to refinance your SMSF loan isn't just about rate. It's about whether the refinance itself creates a new Limited Recourse Borrowing Arrangement under ATO guidance, whether your fund's phase affects borrowing capacity or lender appetite, and whether your existing arrangement falls under pre-commencement protections for residential LRBAs.

What Phase Your Fund Is In When You Refinance

Accumulation phase means contributions are still being made and the fund is building capital. Pension phase means at least one member is drawing a retirement income stream. The phase determines tax treatment of fund income and, in some cases, lender serviceability calculations.

Lenders assess SMSF loan applications based on rental income from the property, not the trustees' personal income. During accumulation, fund income is taxed at 15%. During pension phase, fund income including rental income may be tax-exempt depending on the proportion of assets supporting pension liabilities. Some lenders will assess serviceability using grossed-up post-tax rental income during accumulation but apply different treatment to pension-phase funds. The phase also affects how offset accounts and surplus cash are treated when calculating debt serviceability.

Consider a fund holding a commercial property under an LRBA with a fixed rate expiring. The trustees are both still working, and the fund remains in accumulation. The rental income is $60,000 annually, taxed at 15%, leaving $51,000 net. Lender A assesses at 80% of net rental income. Lender B uses gross rental and applies their own tax treatment. The difference in serviceability can determine whether the refinance proceeds or whether the fund must accept the revert rate from the existing lender.

Does Refinancing Create a New LRBA Under the Residential Ban

The Treasury Laws Amendment (Tax Reform No. 1) Act 2026 prohibits new residential LRBAs from 1 July 2026. Existing residential arrangements can be maintained or refinanced, provided the refinance does not constitute a new LRBA under ATO interpretation. As at 2 July 2026, the ATO has not published updated guidance on what circumstances trigger a new arrangement post-commencement.

Under the ATO's existing position in Practical Compliance Guideline PCG 2016/5, a significant change to the terms or conditions of an LRBA can end the original arrangement and create a new one. Refinancing that is inconsistent with the original arrangement, borrowing to acquire an asset not contemplated under the original arrangement, or changes to the ultimate beneficiaries of the arrangement may end the existing LRBA. If a residential LRBA entered into before 1 July 2026 is refinanced in a way that creates a new arrangement after that date, the new arrangement would be prohibited.

A Brisbane fund holds a residential investment property acquired under an LRBA in early 2025. The fixed rate expires in late 2026. The trustees refinance to a different lender, maintaining the same property as the single acquirable asset, the same limited recourse structure, and the same beneficiaries. The loan amount does not increase beyond the outstanding balance and allowable costs. This refinance is likely to be treated as maintaining the original arrangement. If instead the trustees seek to refinance and draw additional funds against equity to acquire a second residential property, that would constitute a new LRBA for a residential asset and would be prohibited.

Refinancing Commercial LRBAs Across Phase Changes

Commercial property LRBAs are not affected by the residential ban. Refinancing a commercial SMSF loan can proceed in either accumulation or pension phase, subject to standard compliance conditions.

The refinanced loan must relate to the same single acquirable asset held under the original LRBA. The limited recourse character must be maintained, meaning the lender's recourse in the event of default remains limited to that asset and not other fund assets. The loan terms must meet arm's length conditions consistent with PCG 2016/5, including interest rates within the ATO's published safe harbour ranges.

During pension phase, the fund's tax-exempt status on income supporting pension liabilities can improve cash flow, but this does not always translate to improved borrowing capacity. Lenders do not lend based on tax savings. They lend based on rental income and property value. If the commercial property generates $80,000 in annual rent, that figure is what the lender assesses, regardless of whether the fund pays tax on it. Some lenders apply a loading to pension-phase funds due to perceived liquidity risk or the possibility of phase changes during the loan term.

How Offset Accounts and Surplus Cash Are Treated

An offset account linked to an SMSF loan reduces interest payable without creating a charge over fund assets, provided the offset account is a genuine offset offered by an authorised deposit-taking institution. Funds in accumulation phase often accumulate surplus cash from contributions and rental income. Funds in pension phase may draw down reserves to meet pension obligations.

When refinancing, the treatment of offset balances varies by lender. Some lenders allow existing offset balances to transfer or establish a new offset at settlement. Others do not offer offset accounts on SMSF loans. If the fund has significant cash reserves, the absence of an offset facility can result in higher net interest costs. This is particularly relevant for pension-phase funds with lumpy cash flows due to periodic pension payments.

A fund in pension phase holds $120,000 in an offset account linked to a $450,000 LRBA loan. The fixed rate expires and the trustees compare refinance offers. Lender A offers a lower headline rate but no offset account. Lender B offers a marginally higher rate with an offset facility. Over a 12-month period, the net interest cost with Lender B is lower due to the offset benefit, even though the rate is higher. The comparison must account for the fund's actual cash position, not just the advertised rate.

When a Phase Change Coincides With Refinancing

A trustee entering pension phase during the life of an LRBA does not trigger a refinance, but refinancing at the same time as a phase change introduces additional complexity. The fund's financial position reported to the lender must reflect the phase at the time of application. If a member commences a pension after the application is lodged but before settlement, the lender may require updated financials or trustee declarations.

Phase changes can also affect the fund's capacity to meet ongoing loan obligations. A pension-phase fund must meet minimum pension payment requirements each year. If rental income is insufficient and the fund lacks other liquid assets, the trustees may be forced to sell the property or contribute additional funds, which may not be permitted once a member has retired and contribution caps apply.

Compliance Conditions That Apply Regardless of Phase

Every SMSF loan refinance must maintain the limited recourse structure of the original LRBA. The lender's recourse in default must remain limited to the single acquirable asset held under the arrangement. A related party may provide a personal guarantee, but their recourse must also be limited to that asset, not other fund assets.

The refinanced loan must meet arm's length terms. The ATO publishes safe harbour interest rates under PCG 2016/5, updated annually. These rates apply to both real property and listed securities held under an LRBA. Income from an arrangement that does not meet arm's length terms may be assessed as non-arm's length income and taxed at the highest marginal rate, which eliminates any tax advantage and can result in significant unexpected liabilities.

The refinance must not involve acquiring a new asset unless that asset was contemplated under the original LRBA. Refinancing to a higher amount to fund improvements to the property is permitted within limits, but refinancing to fund the acquisition of a second property would constitute a new LRBA. For residential properties acquired before 1 July 2026, any refinance that triggers a new LRBA after that date would be prohibited.

If you are holding a residential or commercial property in your fund and your fixed rate is expiring or your loan is reverting to a higher variable rate, the phase your fund is in and the structure of your original borrowing both matter. Call one of our team or book an appointment at a time that works for you.

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