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borrowing through your SMSF

Borrowing through your Self-Managed Super Fund (SMSF)


Apr 12, 2016


Adelaide accountant Kym Nitschke writes about navigating the complex system of borrowing through your Self-Managed Super Fund.

Thinking about your next investment? You may be able to borrow through your Self-Managed Super Fund (SMSF).

How Borrowing through your SMSF Works

Since 2007, Superannuation laws have changed to allow an SMSF to borrow money to purchase an investment asset, however there are many rules and regulations associated with doing so. In this post, we’ll give you a brief overview.

If you decide to borrow money to purchase an investment property within your SMSF, you must abide by some strict borrowing conditions. These conditions are what constitute a ‘Limited Recourse Borrowing Arrangement’ (LRBA)

The lender can be anyone you want it to be. It does not necessarily have to be a bank or lending institution. It can be a family member, your own company or even yourself. However, the process must still be done on commercial terms, no matter who the lender is.

The trustee of the SMSF borrows the money from a third party lender. The asset is then held on trust for the benefit of the SMSF.

Limitations of Borrowing

An LRBA can only be used to buy a single asset, such as a residential or commercial property, or a parcel of identical shares in the same company. You cannot buy a share portfolio investing in shares across different companies or several properties under one arrangement. 

Assets cannot be replaced or improved until the loan is paid off, shares cannot be actively traded, and properties cannot be developed. With that in mind, you need to carefully consider whether borrowing within your SMSF is the right move for your fund and what consequences could result.

Borrowing through your SMSF – Is it Right for You?

Should you borrow money inside your SMSF? There are several factors you need to consider before making the decision. Some of them are as follows:

– Higher Costs – SMSF loans tend to be more costly

– You will require sufficient cash flow inside the fund to meet the loan repayments 

– It is harder to cancel

– Tax losses cannot be offset against your personal income

– You cannot make alterations to a property until the loan is paid off, if the alterations change the character of the property

This is by no means an exhaustive summary of borrowing funds through your SMSF. The complexity and ramifications from this process can be challenging, so we recommend that you seek professional advice.

The Nitschke Nancarrow financial experts in Adelaide are ready to answer your questions and guide you through the decision-making process. Contact us at (08) 8379 9950 or send me an email.

– Kym Nitschke

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