Borrowing By Self-Managed Super Funds

2 min read
Self-Managed super Fund LRBA

If you are considering establishing a Self-Managed Super Fund (SMSF) and want to obtain a loan or borrow funds to acquire super fund assets, you need to enter into a specific borrowing arrangement called a Limited Recourse Borrowing Arrangement (LRBA). One example we often come across at Priority Business Lawyers is that when you own a commercial property in your name alone, it is possible to establish a LRBA and arrange to transfer the property into your SMSF.

There are specific criteria that you need to satisfy to make the LRBA compliant with the relevant guidelines and statutes –

  1. The SMSF can only borrow money for the purpose of acquiring a single acquirable asset. The money borrowed can also be used towards associated purchase expenses, including stamp duty, legal fees, and disbursements. This means that in the event of default in repayments by the SMSF, the lender is limited to recovering outstanding debts and liabilities from this single acquired asset only.
  2. The single acquirable asset is held in trust for the SMSF and the Trustee acquires a ‘beneficial interest’ in the asset. Once the loan is paid off by the SMSF, the SMSF acquires absolute legal ownership of the asset.
  3. In order to establish this trust, a Bare Trust Deed needs to be established. This document means that a Bare Trustee holds the asset in its name, on behalf of the Trustee of the SMSF. The Bare Trustee has no other function than this. It is recommended that the Bare Trustee be a corporation, so that issues around death or departure beneath Trustee level can be handled efficiently. Once the loan is paid off, the Trustee of the SMSF can become the legal owner on the title, with the SMSF being entitled to absolute legal ownership.

There are many benefits of entering into a LRBA, including that the SMSF can receive all income from the property, such as rent or capital growth, even if the LRBA has not been paid off.

It is recommended that you speak to one of our legal team at Priority Business Lawyers for further advice, prior to entering into such an arrangement. It is also recommended that you see a Financial Adviser and Accountant to discuss the financial and tax implications of entering into a LRBA.

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Director Lawyer, PBL Law Group

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PBL handled my late mothers estate, they were very obliging and patient with any and all questions that we had, thank you to David , Sharon and the other staff that we dealt with, everyone was so easy to talk to and friendly .David came to the home where my Mother was living and helped her to get her will in order, Sharon helped us through the process of executing her wishes when the time came even doing a house call which was so much easier, thank you all so much
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I have experienced an excellent service from PBL (especially from Anita) during the sale of my recent property on Central Coast, and during the purchase of our current property in Sydney. Throughout many challengers, especially with the sale, Anita presented her very professional and knowledgeable conveyancer, positively solving all obstacles. "Above and Beyond" Award going to Anita!!! :-)
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The five-star reviews are well-deserved. I needed a motion and a bylaw drawn up for urgent repairs of my strata unit and the AGM was in two weeks' time. My solicitor was friendly, efficient, knew what documents to ask for, and had all the paperwork prepared well within the timeframe. She also took the time to run through all the legalese and the different possible scenarios with me to make sure I understood. I am so glad to have found this firm and I will not hesitate to use their services again in future if the need arises.
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Tricia Wheatstone
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