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SMSF Loans

Limited Recourse Borrowing Arrangement

According to the Superannuation Industry Supervision Act 1993 (SIS Act), a Self Managed Superannuation Fund (SMSF) can use a limited recourse loan arrangement to borrow money to acquire an asset to be held in a separate Custodian Trust.

In a limited recourse arrangement, the lender’s rights are limited to the asset acquired with the borrowed funds and any guarantor security that has been provided. This means that there is no recourse to the other assets owned by the SMSF.

Under the arrangement the SMSF has a beneficial interest in the acquired asset held on trust therefore any investment returns earned from the asset go to the SMSF trustee/s.

Once the loan used to acquire the asset has been repaid, the SMSF trustee has the right to acquire legal ownership of the asset and it can be transferred into the SMSF and the Custodian Trust can be wound up.

Over the past several years a large number of Australians have established SMSF’s in order to take advantage of limited recourse borrowing arrangement to purchase property investments, particularly due to the exceptional tax benefits associated with superannuation.

However, setting up an SMSF a with limited recourse borrowing arrangement is a somewhat costly exercise and is a long term commitment; therefore it is not a wise step for everyone.

Issues to consider with such a strategy include:

  • have I accumulated sufficient super to raise an adequate deposit
  • will I have enough liquidity (cash) in my SMSF after purchasing a property
  • have I accurately calculated the expenses associated with purchasing a property
  • have I accurately calculated the ongoing expenses associated with the property
  • do I have a reasonable projection of the rental income
  • will I be able to repay the loan before I retire

Due to our collaboration between Financial Planners/Advisors, Experienced Finance Brokers and Property Investment Advisors we have become very experienced within the SMSF and Limited Recourse Borrowing Arrangement space. Given our qualifications and experience we able to you answer your questions and put the facts at your fingertips.

Should you and your advisor agree a Limited Recourse Borrowing Arrangement is right for you we can help you negotiate what is often viewed as a complicated and intimidating application process