SMSF Limited Recourse Borrowing Arrangements

All staff are given specialist training in SMSF and it is a niche area of expertise for our business.

We can easily navigate SMSF loans and get them arranged and approved in record time, due to our expertise in SMSF borrowing structures and our access to accounting documents which are continuously updated. This allows us to speed through the application and bank approval process.

What is SMSF Limited Recourse Borrowing Arrangements?

Self-Managed Superannuation Fund Trustees are able to borrow to buy a commercial or residential investment property in their SMSF using a bare trust or holding trust (which is the legal holder of the trust).

A key benefit of purchasing an investment property through your SMSF as a LRBA is that in the event that you default on the mortgage, the assets in the SMSF are protected, other than the security property that is subject to the terms of the borrowing arrangement.

Benefits of limited recourse loans:

• SMSF LRBAs help diversity the investments in your SMSF.
• Business owners can buy business premises, and pay rent to the SMSF from the business
• In the instance of a default on the mortgage, the other assets held by your SMSF are protected from recourse, or from the financial institution selling those assets to recoup losses from the sale of the property.
• Your SMSF may be entitled to Capital Gains Tax concessions
• If retirement is not part of your immediate plans, you are able to use concessional super contributions to pay off your loan faster.

Considerations and Risks:

• Is the property you are purchasing going to put you in a better position to retire? Consideration needs to be given to balance between the rental income and capital growth versus the mortgage interest rate and the cost of the maintenance and repairs of the property.
• The property is subject to changes in the property market
• If property is a large portion of the SMSF’s total assets, there is a risk of illiquidity if the property needs to be sold quickly, but stalls, resulting in an inability for the SMSF to meet the obligations it has to its members.
• SMSF and superannuation rules and legislations can change based on the government in power at the time. Rule changes and breaches need to be managed by a qualified accountant to ensure that fines aren’t accrued.
• The property cannot be acquired from a related party to the SMSF, nor can it be rented to a related party.
• SMSF Members and trustees are required by the lending institution to provide personal guarantees