Rules to Refinance an SMSF Loan After August 2026

Refinancing a limited recourse borrowing arrangement under the new rules depends entirely on whether your LRBA existed before 10 August 2026 and whether the property is residential or commercial.

Refinancing Residential LRBAs Established Before 10 August 2026

You can refinance a residential LRBA that existed before 10 August 2026 without triggering the new rules. The ATO treats refinancing as entering into a new loan contract for the same asset, with either the same lender or a new lender. If your arrangement was compliant and in place before the commencement date, you can switch SMSF lender without the refinanced loan being subject to the post-commencement prohibition on new residential LRBAs.

Consider a Victorian SMSF that acquired an investment property in Brunswick under an LRBA in March 2025. The fixed rate expires in October 2026 and the SMSF loan revert rate is 1.8 percentage points above the variable rate offered by another lender. The trustee can refinance to the new lender because the original arrangement was in place before 10 August 2026, and the refinanced loan relates to the same property held in the same holding trust structure.

The refinanced arrangement must maintain the same single acquirable asset. You cannot add a second property or extend the borrowing to fund improvements unless those improvements were contemplated in the original arrangement. The refinanced loan must remain limited recourse, meaning the lender's rights in the event of default are restricted to the asset being acquired, with no recourse to other SMSF assets.

When Refinancing Creates a New Arrangement

A significant change to the terms or conditions of your LRBA can end the existing arrangement and create a new one. If that new arrangement is entered into on or after 10 August 2026 and involves residential property, it cannot proceed under the current rules.

Circumstances that may end an existing arrangement include refinancing that is materially inconsistent with the original structure, borrowing to acquire an asset not contemplated under the original arrangement, or changes to the ultimate beneficiaries of the trust. The ATO has not published exhaustive guidance on what constitutes a material inconsistency, so trustees refinancing residential LRBAs should obtain advice from a licensed SMSF specialist before proceeding.

In a scenario where a Victorian SMSF holds a residential property in Geelong under an LRBA established in 2024, and the trustee attempts to refinance in late 2026 while simultaneously restructuring the holding trust to add new members as beneficiaries, that change may end the original arrangement. The refinanced loan would then be treated as a new LRBA entered into after 10 August 2026, which would not be permitted for residential property.

Refinancing Commercial Property LRBAs

Refinancing a commercial LRBA is not affected by the August 2026 changes. You can refinance SMSF commercial loans established before or after that date, provided the refinanced arrangement remains compliant with existing LRBA rules.

The refinanced loan must relate to the same single acquirable asset held in the original arrangement. The limited recourse character must be maintained, and the terms of the refinanced loan must meet arm's length conditions consistent with Practical Compliance Guideline PCG 2016/5. This includes the interest rate, loan term, loan-to-value ratio, and repayment structure.

A Victorian SMSF holding a warehouse in Dandenong under a commercial LRBA can switch lenders in 2027 to access a lower variable rate or add an offset facility, provided the new loan is on arm's length terms and the holding trust structure remains unchanged. The refinanced arrangement does not trigger the residential LRBA prohibition because commercial property is not subject to the new rules.

Interest Rate Compliance Under PCG 2016/5

Any SMSF loan refinance must meet arm's length terms or risk non-arm's length income treatment. The ATO publishes safe harbour interest rates under PCG 2016/5, updated annually for both real property and listed securities. PCG 2016/5 applies to all SMSF trustees with LRBAs, regardless of when the arrangement commenced.

If your refinanced loan is priced above the safe harbour rate, it is presumed to meet arm's length conditions. If the rate is below the safe harbour threshold, the ATO may assess income from the arrangement as non-arm's length income and tax it at 45 percent. This applies to both residential and commercial LRBAs, whether established before or after August 2026.

The safe harbour rates are expressed as a margin above the Reserve Bank's indicator lending rate for standard variable housing loans. A specialist SMSF refinance broker can compare SMSF refinance lenders against the current safe harbour rate to confirm the refinanced arrangement remains compliant.

Offset Accounts and Additional Features

Genuine offset accounts offered by an authorised deposit-taking institution are not treated as a borrowing or a charge over fund assets. You can add an SMSF offset account when refinancing without breaching the single acquirable asset rule or creating a second borrowing arrangement.

An offset account linked to the LRBA loan reduces the interest charged on the outstanding balance without altering the principal loan structure. This is distinct from a redraw facility, which may be treated as a variation to the borrowing depending on how it is structured. Trustees refinancing should confirm with their SMSF refinance broker whether features offered by the new lender meet ATO guidance.

Limited recourse must be maintained through refinancing. If a related party provides a personal guarantee to the lender, their recourse must also be limited to the asset under the arrangement, with no claim against other SMSF assets.

What to Confirm Before You Refinance

Before submitting an SMSF refinance application, confirm the original LRBA commencement date, the property type, and whether any changes to the holding trust or beneficiaries have occurred since the arrangement was established. If the property is residential and the LRBA commenced before 10 August 2026, the refinance can proceed provided the refinanced loan relates to the same asset and maintains the limited recourse structure.

If the property is commercial, refinancing is permitted regardless of the original LRBA commencement date, subject to ongoing compliance with PCG 2016/5 and other LRBA conditions. Trustees should obtain updated valuations and confirm the loan-to-value ratio meets lender and regulatory requirements at SMSF refinance settlement.

Victorian SMSF trustees should also confirm that the deed governing the SMSF permits borrowing and that the investment strategy allows for property investment and refinancing activity. As at 10 August 2026, the ATO was still updating certain guidance pages to reflect the new LRBA rules, so trustees should seek advice from a licensed SMSF specialist before acting.

Call one of our team or book an appointment at a time that works for you to compare SMSF refinance lenders and confirm your arrangement meets the current compliance conditions.

Frequently Asked Questions