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Estate Planning, LRBA, SMSF

Borrowing By Self-Managed Super Funds

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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