Yes, the Limited Recourse Borrowing Arrangement allows individuals to make certain borrowing arrangements to their own super funds. This practice has been in the headlines recently, but late last year the federal government rejected the Murray review's proposal to ban self managed superannuation funds (SMSF) from borrowing to buy property.
SMSFs can borrow funds but there are restrictions and rules in place so it’s important to know exactly where you stand before you make the decision to borrow to build your self managed superannuation fund.
An SMSF can borrow funds to buy any type of asset, under the SMSF borrowing rules, allowed by the superannuation law; including property (commercial and residential), shares and managed funds. While there are no restrictions on the type of asset that can be purchases, the requirements under the superannuation borrowing rules (also referred to as LRBAs or Limited Recourse Borrowing Arrangements) SMSFs primarily borrow to purchase investment properties.
The main SMSF borrowing rules
There are a number of important considerations and rules involved in borrowing for a self managed superannuation fund, but here are the main ones:
- The asset that the fund purchases with the borrowed funds must be a single, acquirable asset as defined by superannuation law. Usually, this means that the borrowed money can only be used to buy a single property or a parcel of identical share in the same company, at the same time.
- Where an SMSF has borrowed funds from a lender in order to buy an asset, the asset cannot usually be improved upon or replaced while the loan is still outstanding. Usually, this means the SMSF loans cannot be used to facilitate a property development and share investments cannot be actively traded.
These first two rules are an important part of the reason why borrowing money to buy shares through a self-managed superannuation fund has not been a popular choice and alternatively, why a single, larger asset such as property has been so popular.
- To ensure that any borrowing through the SMSF doesn’t place other investments held by the fund at risk, the asset that is purchase under the limited recourse borrowing arrangement must be held in a specific holding trust while the loan is outstanding. Additionally, the only SMSF asset that may be used as security for SMSF loans is the asset that is held within this trust in order to help protect the other assets held within the fund.
How can Mint Equity help with Limited Recourse Borrowing
We have specialist knowledge of SMSF loans which are more complex than a standard home loan, so it’s essential that self managed super fund owners seek guidance from a mortgage broker who knows the options, industry, credit criteria and requirements to ensure you have smooth process.
We’ll guide you through the process of arranging finance for the purchase of a property in your SMSF and identify the maximum loan amount you can secure so you can easily identify key properties that fit your strategy.
Whether you’re looking for an SMSF loan for your residential or commercial property, we will liaise with the lender to ensure you get the best interest rate, terms and pre-approved finance.
Our services are free of charge as we are remunerated by the lender you choose once the loan reaches settlement.
Seek professional advice before making the decisions to borrow as your self-managed superannuation fund.