Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 121

Watch SMSF borrowing rules for separate assets

The superannuation law allows SMSFs to borrow to acquire assets. The law, referred to as a ‘limited recourse borrowing arrangement’ (LRBA), is complex. You need to establish a separate trust structure (known as a ‘bare trust’), separate trustee, and you must ensure that the purchase documents and loan contracts are correctly worded. You also need to do things in the appropriate order to comply with the superannuation law, the income tax law as well as stamp duty obligations. SMSF trustees should not attempt to enter into LRBAs without first consulting with a reliable SMSF specialist.

Understanding ‘single acquirable asset’

Under a LRBA, an SMSF can only borrow to acquire a ‘single acquirable asset’. The term ‘acquirable’ is important because if an SMSF purchases an asset from a related party of the members of the SMSF, it can only be an asset that is permitted under the law, such as listed securities and properties that are exclusively used in a business. If the asset is owned by an unrelated party, then it can be anything as long as the acquisition is in accordance with the SMSF’s trust deed and its investment strategy.

For real estate, a single asset is a property on one title. If the property is on two titles, it is treated as two separate assets, unless there is a unifying physical object attached to the land which is permanent in nature, not easily removed, and is significant in value relative to the value of the asset. If there is also a requirement under a law of a State or Territory that the two assets must be dealt with together, then it will be treated as a single asset. Be very careful with commercial and primary production properties in particular, as I have met clients wanting to purchase car yards and farms where the businesses are conducted on land spread over multiple titles where there were no restrictions in selling these titles separately. In order to purchase the properties, more than one LRBA needed to be established. This means, more than one bare trust needs to be established where each bare trust only holds one property title.

Trustees should also be wary of advice that encourages them to use multiple trustees for bare trusts. I have seen SMSF trustees who have been advised that where there are multiple LRBAs and multiple bare trusts, they need to have a different trustee for each bare trust. This advice is incorrect. You can have the same trustee to act as the trustee of all the bare trusts.

If the acquirable asset is listed shares, it needs to be a collection of identical shares that have the same market value, and were purchased in one single transaction at the same price. If the shares were purchased over a number of different transactions at different times and at different prices then more than one LRBA and more than one bare trust need to be established.

Some SMSF trustees believe it is a requirement for the bare trust to be a corporate trustee. This is also incorrect. The law does not state that the trustee must be a corporate trustee. An individual can act as the trustee of the bare trust as long as the same individual does not act as the trustee of the SMSF. I should point out that some lending institutions prefer the trustee of the bare trust to be a company; however, it is not a legal requirement.

I have assisted clients who have established LRBAs incorrectly due to incorrect advice received from professionals who do not fully understand the law. Although we resolved some issues, the initial bad advice cost clients a lot of stress and money.

 

Monica Rule is an SMSF specialist and author of ‘SMSFs and Properties’. See www.monicarule.com.au. This article provides general information only and does not take into account your individual objectives, financial situation or needs.

 


 

Leave a Comment:

RELATED ARTICLES

Ensure death benefit nominations are upheld

SMSFs can lend to some relatives

SMSFs and house and land packages

banner

Most viewed in recent weeks

Australian house prices close in on world record

Sydney is set to become the world’s most expensive city for housing over the next 12 months, a new report shows. Our other major cities aren’t far behind unless there are major changes to improve housing affordability.

The case for the $3 million super tax

The Government's proposed tax has copped a lot of flack though I think it's a reasonable approach to improve the long-term sustainability of superannuation and the retirement income system. Here’s why.

7 examples of how the new super tax will be calculated

You've no doubt heard about Division 296. These case studies show what people at various levels above the $3 million threshold might need to pay the ATO, with examples ranging from under $500 to more than $35,000.

The revolt against Baby Boomer wealth

The $3m super tax could be put down to the Government needing money and the wealthy being easy targets. It’s deeper than that though and this looks at the factors behind the policy and why more taxes on the wealthy are coming.

Meg on SMSFs: Withdrawing assets ahead of the $3m super tax

The super tax has caused an almighty scuffle, but for SMSFs impacted by the proposed tax, a big question remains: what should they do now? Here are ideas for those wanting to withdraw money from their SMSF.

The super tax and the defined benefits scandal

Australia's superannuation inequities date back to poor decisions made by Parliament two decades ago. If super for the wealthy needs resetting, so too does the defined benefits schemes for our public servants.

Latest Updates

Planning

Will young Australians be better off than their parents?

For much of Australia’s history, each new generation has been better off than the last: better jobs and incomes as well as improved living standards. A new report assesses whether this time may be different.

Superannuation

The rubbery numbers behind super tax concessions

In selling the super tax, Labor has repeated Treasury claims of there being $50 billion in super tax concessions annually, mostly flowing to high-income earners. This figure is vastly overstated.

Investment strategies

A steady road to getting rich

The latest lists of Australia’s wealthiest individuals show that while overall wealth has continued to rise, gains by individuals haven't been uniform. Many might have been better off adopting a simpler investment strategy.

Economy

Would a corporate tax cut boost productivity in Australia?

As inflation eases, the Albanese government is switching its focus to lifting Australia’s sluggish productivity. Can corporate tax cuts reboot growth - or are we chasing a theory that doesn’t quite work here?

Are V-shaped market recoveries becoming more frequent?

April’s sharp rebound may feel familiar, but are V-shaped recoveries really more common in the post-COVID world? A look at market history suggests otherwise and hints that a common bias might be skewing perceptions.

Investment strategies

Asset allocation in a world of riskier developed markets

Old distinctions between developed and emerging market bonds no longer hold true. At a time where true diversification matters more than ever, this has big ramifications for the way that portfolios should be constructed.

Investment strategies

Top 5 investment reads

As the July school holiday break nears, here are some investment classics to put onto your reading list. The books offer lessons in investment strategy, financial disasters, and mergers and acquisitions.

Sponsors

Alliances

© 2025 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.