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 This article provides general information only and does not take into account your individual objectives, financial situation or needs.


Leave a Comment:



Ensure death benefit nominations are upheld

SMSFs can lend to some relatives

SMSFs and house and land packages


Most viewed in recent weeks

Check eligibility for the Commonwealth Seniors Health Card

Eligibility for the Commonwealth Seniors Health Card has no asset test and a relatively high income test. It's worth checking eligibility and the benefits of qualifying to save on the cost of medications.

Start the year right with the 2022 Retiree Checklist

This is our annual checklist of what retirees need to be aware of in 2022. It is a long list of 25 items and not everything will apply to your situation. Run your eye over the benefits and entitlements.

At 98-years-old, Charlie Munger still delivers the one-liners

The Warren Buffett/Charlie Munger partnership is the stuff of legends, but even Charlie admits it is coming to an end ("I'm nearly dead"). He is one of the few people in investing prepared to say what he thinks.

Should I pay off the mortgage or top up my superannuation?

Depending on personal circumstances, it may be time to rethink the bias to paying down housing debt over wealth accumulation in super. Do the sums and ask these four questions to plan for your future.

Part 2: Hamish Douglass on not swinging for the fences

Markets don't seem normal, but Magellan is criticised for its caution. Higher interest rates to control inflation could create a recession and some of today's investing will turn out a mass delusion of modern history.

Will 2022 be the year for quality companies?

It is easy to feel like an investing genius over the last 10 years, with most asset classes making wonderful gains. But if there's a setback, companies like Reece, ARB, Cochlear, REA Group and CSL will recover best.

Latest Updates

Investment strategies

Despite the focus on ETFs, unlisted funds still dominate

ETFs gain the headlines as issuers are skilled at promoting their growth and new funds. Yet ETFs are tiny compared with managed funds, which advisers prefer on platforms. Which will be the long-term winner?

Latest from Morningstar

10 lessons from Larry Fink's 2022 Outlook

At a 2022 Outlook event, the influential BlackRock (largest fund manager in the world) CEO spoke about consumer behaviour and its impact on prices, the pandemic, ESG trends and likely equity returns for 2022.


If rising inequality leads to social unrest, we all suffer

Feeling financially stressed? The entry level for the world's richest 1% is $1.5 million including the family home. If this is not enough to fund a ‘comfortable’ lifestyle, consider that 99% of people have less.


Sharemarket falls: seven things for investors to consider

Stockmarkets have fallen in recent weeks on the back of worries about inflation, monetary tightening, Omicron disruption and the risk of a Russian invasion of Ukraine. It’s too early to say markets have bottomed.


The importance of retirement 'conditions of release'

Retirement 'conditions of release' vary by age in stages before 60, over 60 and over 65. Super tax benefits may accrue if gainful employment ceases after age 60 but a person may still return to the workforce.

Investment strategies

We need to limit retail investor harm from CFDs

A Contract for Difference (CFD) is a highly-leveraged investment used for speculative and gambling activities by retail investors without the knowledge to take such risks. ASIC is struggling to control the product.


It's time to assess your super fund’s carbon footprint

We face a huge economic transformation that is not a priority for politicians. Yet a typical super portfolio emits about 28 tonnes of CO2 per annum through its equities ownership, more than the average household.



© 2022 Morningstar, Inc. All rights reserved.

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. Any general advice or ‘regulated financial advice’ under New Zealand law has been prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892) and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, without reference to your objectives, financial situation or needs. For more information refer to our Financial Services Guide (AU) and Financial Advice Provider Disclosure Statement (NZ). 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.

Website Development by Master Publisher.