Refinancing an SMSF loan is not a matter of shopping for a lower rate and signing new documents.
Every refinanced arrangement must maintain the limited recourse structure of the original loan, meet arm's length terms under ATO compliance guidelines, and in some circumstances comply with new legislative restrictions that commenced in August this year. A misstep in any of these areas can result in the loan being treated as non-compliant, with income from the arrangement taxed at 45 percent or the borrowing declared invalid entirely.
SMSF Loan Refinance and the August 2026 Rule Change
Refinancing a residential SMSF loan that was in place before 10 August 2026 is still permitted and does not trigger the new restrictions on residential property acquisitions. The ATO treats SMSF loan refinance as entering into a new loan contract for the same asset, either with your existing lender or a new one. Provided the refinanced arrangement remains consistent with the original LRBA terms and does not involve acquiring a different asset or changing the ultimate beneficiaries, the arrangement continues under pre-commencement rules.
Consider a fund that purchased a residential investment property in Mandurah in early 2025 using a limited recourse borrowing arrangement. The fixed rate is expiring and the fund is refinancing to a variable rate with a different lender. Provided the refinanced loan relates to the same property held in the same holding trust, with the same beneficiaries and limited recourse structure, the refinance proceeds without being subject to the post-commencement residential property ban. The outcome depends entirely on whether the refinance maintains continuity with the original arrangement.
What Ends an Existing LRBA and Starts a New One
A significant change to the terms or conditions of your LRBA can end the existing arrangement and trigger a new one. If that new arrangement is entered into on or after 10 August 2026 and involves residential property, it cannot proceed. Circumstances that end an existing arrangement include refinancing that is inconsistent with the original structure, borrowing to acquire an asset not contemplated under the original LRBA, or changing the ultimate beneficiaries of the arrangement.
In a scenario where a fund refinances but uses part of the loan proceeds to acquire an additional property or to fund improvements beyond what was originally contemplated, the ATO may treat this as a new arrangement. If that new arrangement involves residential property and is entered into after 10 August, it would be prohibited. The fund would need to unwind the transaction or face compliance action.
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Commercial LRBA Refinancing Remains Unaffected
Refinancing a commercial SMSF loan is not impacted by the August 2026 changes. Compliance conditions still apply, including that the refinanced loan must relate to the same single acquirable asset, maintain the limited recourse character of the original arrangement, and meet arm's length terms consistent with the ATO's Practical Compliance Guideline PCG 2016/5. The same principles apply whether you are refinancing a warehouse in Joondalup or a retail premises in Cannington.
Commercial property LRBAs continue to be available for new acquisitions and refinancing, provided the arrangement complies with the usual structural and arm's length requirements.
Arm's Length Terms and Safe Harbour Rates
Every refinanced SMSF loan must meet arm's length terms, meaning the interest rate, fees, and conditions would be consistent with a commercial transaction between unrelated parties. The ATO publishes safe harbour interest rates under PCG 2016/5, updated annually, that apply to both real property and listed securities. These rates apply regardless of when your original LRBA commenced.
If your refinanced loan does not meet arm's length terms, income from the arrangement may be assessed as non-arm's length income and taxed at 45 percent. This applies whether the lender is a related party or an unrelated financial institution. A loan with a below-market interest rate from a related party, or one with terms inconsistent with PCG 2016/5, will trigger this penalty.
When refinancing, confirm that the interest rate and loan terms fall within the ATO's published safe harbour range or obtain written advice that the terms are consistent with arm's length criteria. This is not a matter of opinion or flexibility.
Limited Recourse Character Must Be Maintained
The limited recourse requirement means that in the event of default, the lender's recourse is restricted to the asset being acquired under the arrangement. This character must be maintained through any refinance. If the refinanced loan allows the lender to pursue other SMSF assets or the trustees personally beyond the holding trust asset, the arrangement is non-compliant.
A related party may provide a personal guarantee to the lender, but their recourse must also be limited to the asset under the arrangement and not extend to other fund assets. Most commercial lenders offering SMSF residential loans structure their security documentation to meet this requirement, but it must be confirmed in writing before settlement.
Offset Accounts and Additional Loan Features
Genuine offset accounts offered by an authorised deposit-taking institution are not treated as a borrowing or a charge over fund assets under existing ATO guidance. If your refinanced loan includes an offset facility, it can be used without creating a compliance issue, provided the offset account is structured correctly and does not involve a separate loan or charge.
Other features such as redraw facilities, split rate structures, or the ability to make extra repayments are permissible provided they do not alter the limited recourse nature of the loan or result in terms that are inconsistent with arm's length requirements.
Trust Deed Limits and Borrowing Authority
Your SMSF trust deed must permit borrowing under section 67A of the Superannuation Industry (Supervision) Act 1993. Some older trust deeds do not include this authority or impose additional restrictions on the types of borrowing arrangements the fund can enter. Before proceeding with a refinance, confirm that the trust deed allows the specific type of LRBA you are refinancing and that the deed has not been amended in a way that restricts the fund's borrowing powers.
If the trust deed is silent or prohibits borrowing, it must be amended before the refinance can settle. This is not something that can be rectified retrospectively. A deed that does not authorise the borrowing invalidates the entire arrangement.
Refinancing Related Party Loans
If your original LRBA was funded by a related party and you are refinancing to an unrelated lender, the refinance is treated as repaying the related party loan and entering into a new arrangement. The new loan must meet all compliance requirements, including limited recourse terms, arm's length interest rates, and consistency with the original LRBA structure.
Refinancing from a related party to a commercial lender does not change the requirement that the loan relate to the same asset and maintain the same beneficiaries. It also does not exempt the refinanced loan from the arm's length income rules. The commercial lender's terms must fall within the ATO's safe harbour rates or be supported by independent evidence that they are consistent with market terms.
Documentation and Settlement Requirements
The refinanced loan must be documented in a way that clearly reflects the limited recourse character, the asset being acquired, and the holding trust structure. The loan agreement, mortgage or charge documentation, and any guarantee must be consistent with the requirements under section 67A and the ATO's guidance on LRBAs.
Settlement must occur in a way that does not result in the fund or trustees personally guaranteeing the loan beyond the limited recourse terms. If the settlement statement or loan documents contain clauses that extend liability to other fund assets, the arrangement is non-compliant from settlement date.
Call one of our team or book an appointment at a time that works for you. We work exclusively with SMSF trustees in Western Australia and can confirm whether your refinance meets the current compliance requirements before you proceed.
Frequently Asked Questions
Can I refinance an SMSF residential loan that was in place before August 2026?
Refinancing a residential SMSF loan that existed before 10 August 2026 is still permitted and does not trigger the new residential property ban. The refinanced loan must relate to the same asset, maintain the same beneficiaries, and preserve the limited recourse structure of the original arrangement.
What happens if my SMSF loan refinance does not meet arm's length terms?
Income from an SMSF loan that does not meet arm's length terms may be assessed as non-arm's length income and taxed at 45 percent. The loan must fall within the ATO's published safe harbour rates under PCG 2016/5 or be supported by independent evidence that the terms are consistent with market conditions.
Does my SMSF trust deed need to permit borrowing before I refinance?
Your trust deed must authorise borrowing under section 67A of the SIS Act before any LRBA can be entered into or refinanced. If the deed is silent or prohibits borrowing, it must be amended before the refinance settles, as this cannot be rectified retrospectively.
Can I include an offset account when refinancing my SMSF loan?
Genuine offset accounts offered by an authorised deposit-taking institution are not treated as a borrowing or charge over fund assets under ATO guidance. An offset account can be included in a refinanced SMSF loan without creating a compliance issue, provided it is structured correctly.
Are commercial SMSF loans affected by the August 2026 rule changes?
Commercial SMSF loan refinancing is not impacted by the August 2026 changes. Compliance conditions continue to apply, including limited recourse terms, arm's length interest rates under PCG 2016/5, and that the loan relates to the same single acquirable asset.
