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

Which generation had it toughest?

Each generation believes its economic challenges were uniquely tough - but what does the data say? A closer look reveals a more nuanced, complex story behind the generational hardship debate. 

Maybe it’s time to consider taxing the family home

Australia could unlock smarter investment and greater equity by reforming housing tax concessions. Rethinking exemptions on the family home could benefit most Australians, especially renters and owners of modest homes.

100 Aussies: seven charts on who earns, pays, and owns

The Labor government is talking up tax reform to lift Australia’s ailing economic growth. Before any changes are made, it’s important to know who pays tax, who owns assets, and how much people have in their super for retirement.

The best way to get rich and retire early

This goes through the different options including shares, property and business ownership and declares a winner, as well as outlining the mindset needed to earn enough to never have to work again.

A perfect storm for housing affordability in Australia

Everyone has a theory as to why housing in Australia is so expensive. There are a lot of different factors at play, from skewed migration patterns to banking trends and housing's status as a national obsession.

Chinese steel - building a Sydney Harbour Bridge every 10 minutes

China's steel production, equivalent to building one Sydney Harbour Bridge every 10 minutes, has driven Australia's economic growth. With China's slowdown, what does this mean for Australia's economy and investments?

Latest Updates

Economy

Why we should follow Canada and cut migration

An explosion in low-skilled migration to Australia has depressed wages, killed productivity, and cut rental vacancy rates to near decades-lows. It’s time both sides of politics addressed the issue.

Investing

Simple maths says the AI investment boom ends badly

This AI cycle feels less like a revolution and more like a rerun. Just like fibre in 2000, shale in 2014, and cannabis in 2019, the technology or product is real but the capital cycle will be brutal. Investors beware.

Property

Australian house price speculators: What were you thinking?

Australian housing’s 50-year boom was driven by falling rates and rising borrowing power — not rent or yield. With those drivers exhausted, future returns must reconcile with economic fundamentals. Are we ready?

Shares

ASX reporting season: Room for optimism

Despite mixed ASX results, the market has shown surprising resilience. With rate cuts ahead and economic conditions improving, investors should look beyond short-term noise and position for a potential cyclical upswing.

Property

A Bunnings play without the hefty price tag

BWT Trust has moved to bring management in house. Meanwhile, many of the properties it leases to Bunnings have been repriced to materially higher rents. This has removed two of the key 'snags' holding back the stock.

Investment strategies

Replacing bank hybrids with something similar

With APRA phasing out bank hybrids from 2027, investors must reassess these complex instruments. A synthetic hybrid strategy may offer similar returns but with greater control and clearer understanding of risks.

Shares

Nvidia's CEO is selling. Here's why Aussie investors should care

The magnitude of founder Jensen Huang’s selldown may seem small, but the signal is hard to ignore. When the person with the clearest insight into the company’s future starts cashing out, it’s worth asking why.

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.