Understanding Loan Rules and Regulations For SMSFs
Self-Managed Super Funds (SMSF) are a popular way for Australians to save for their retirement. However, many SMSF trustees are not aware that they can also use their fund to borrow money to invest in property or other assets. This type of borrowing is known as a “limited recourse borrowing arrangement” (LRBA) and it can be a powerful tool for SMSF trustees to grow their retirement savings.
One of the key benefits of using an LRBA is that it allows SMSF trustees to invest in assets that they may not have been able to afford to purchase outright. For example, if an SMSF trustee wants to purchase a property worth $500,000, they may only have $200,000 in their fund. With an LRBA, the trustee can borrow the remaining $300,000 and use the entire $500,000 to purchase the property.
Another benefit of an LRBA is that the interest on the loan is tax deductible. This means that the SMSF can claim the interest as a tax deduction, which can reduce the overall cost of the loan. Additionally, the rental income from the property is taxed at a lower rate than it would be if the property was held in the trustee’s personal name.
However, it’s important to note that there are several rules and regulations that must be followed when using an LRBA. For example, the borrowed funds must be used to purchase a single acquirable asset and the asset must be held in a separate trust until the loan is fully repaid. Additionally, the SMSF must have the ability to repay the loan and the borrowed funds must not exceed the market value of the asset.
SMSF trustees considering an LRBA should seek professional advice from a qualified financial advisor, accountant or lawyer to ensure that they understand the rules and regulations, and that the arrangement is structured correctly.
Disclaimer: This information should not be considered personal financial advice as it is intended to provide general advice only. This factsheet has been prepared by SuperHelp Australia Pty Ltd without taking into account your personal objectives, financial situations or needs.
- Australian Taxation Office. (2021). Self-managed super funds: limited recourse borrowing arrangements. Retrieved from https://www.ato.gov.au/Super/Self-managed-super-funds/In-detail/Limited-recourse-borrowing-arrangements/
- Australian Securities and Investments Commission. (2021). Borrowing to invest in property using an SMSF. Retrieved from https://www.moneysmart.gov.au/superannuation-and-retirement/self-managed-super-funds/borrowing-to-invest-in-property-using-an-smsf
- Australian Taxation Office. (2021). Tax implications of self-managed super funds. Retrieved from https://www.ato.gov.au/Super/Self-managed-super-funds/In-detail/Tax-implications-of-self-managed-super-funds/
Book Your Free SMSF Consultation
Book your free consultation with me to find out if SMSF is right for you. If you have any other questions, we are happy to help!
Why is SMSF Set up so affordable at SuperHelp?
SuperHelp has been servicing the SMSF market for over 15 years. We pride ourselves on being able to provide an affordable SMSF service without compromising on quality. One of these services is to provide new members with setting up their SMSF at an affordable fee when they use our award winning service.
Do I need to use a specific bank, broker or provider?
Unlike other SMSF administrators and accountants we do not restrict you to what bank, broker or service provider you use. We are independent and do not take any commissions from other parties so that our clients can invest their super where they please.
How long has SuperHelp been around for?
SuperHelp have been around since 2002 - so over 15 years! While new SMSF administrators have come and gone, we are still around!
Do you offer any other SMSF services?
Yes we do! You can see a full list of SMSF services on our services page.