SMSF Borrowing and LBRA
Borrow inside your self-managed super fund to acquire property or other assets through a Limited Recourse Borrowing Arrangement. We advise on strategy, prepare all legal documentation, and manage the ongoing accounting for your borrowing arrangement from start to finish.
What Is an SMSF Limited Recourse Borrowing Arrangement?
A Limited Recourse Borrowing Arrangement, commonly known as an LRBA, is the only type of borrowing permitted inside a self-managed super fund. It allows your SMSF to borrow money to acquire a single asset, most commonly property, while limiting the lender’s recourse to that specific asset in the event of a default. This means if something goes wrong, the lender can only claim against the asset being purchased, not against the other assets held in your fund.
LRBAs are one of the most powerful strategies available to SMSF trustees. They allow you to use borrowing to accelerate the growth of your retirement savings, acquire assets that would otherwise be out of reach based on your fund’s current balance, and in the case of business real property, purchase the premises your business operates from using super.
But LRBAs are also one of the most complex SMSF strategies to implement correctly. The legal structure involves multiple entities, specific documentation requirements, and strict ATO rules around loan terms, interest rates, and the type of assets that can be acquired. Getting any part of the setup wrong can jeopardise the entire arrangement and expose your fund to serious compliance risk.
At New Wave SMSF, our accounting, financial planning, and legal teams work together to set up and manage LRBAs correctly from day one, ensuring your borrowing arrangement is structured to deliver the maximum benefit to your retirement with full compliance at every step.
This information is general in nature. For advice specific to your circumstances, please speak with one of our qualified advisers.
How We Support SMSF Borrowing and LRBA Clients
We provide end-to-end support for SMSF trustees who are considering or already operating a Limited Recourse Borrowing Arrangement.
Our services cover:
LRBA Strategy and Suitability Advice
We assess whether an LRBA is appropriate for your fund and your circumstances, advising on the risks, obligations, and opportunities involved before any commitment is made.
Bare Trust and Custodian Trust Setup
We prepare all legal documentation for the bare trust and custodian trust structures required under an LRBA, ensuring the arrangement is correctly established and compliant with ATO requirements.
Loan Agreement Preparation
We prepare or review the loan agreement for your LRBA, ensuring it meets ATO requirements for both related party and commercial lender arrangements, including interest rates and repayment terms.
Property Acquisition Support
We work alongside your financial planner and legal adviser to support the property acquisition process, ensuring the asset is purchased in the correct custodian trustee name and the transaction is fully compliant.
Ongoing LRBA Accounting
We manage the ongoing accounting for your borrowing arrangement, including loan account management, interest expense recording, principal repayment tracking, and correct treatment of the bare trust structure.
LRBA Refinancing and Variations
If your lending arrangements change, we advise on the implications for your LRBA structure and manage any documentation updates required to keep your arrangement compliant with ATO rules.
Asset Transfer on Loan Repayment
When your LRBA loan is fully repaid, the asset must be formally transferred from the bare trust to your SMSF. We manage this process correctly to ensure the transfer is completed without triggering unintended tax consequences.
ATO Compliance and Related Party Loan Rules
We ensure your LRBA meets all ATO requirements including safe harbour interest rates for related party loans, correct documentation, and annual compliance reporting for the borrowing arrangement.
The Rules Around SMSF Borrowing
Before setting up an LRBA, there are several key rules every trustee needs to understand.
An SMSF can only borrow to acquire a single acquirable asset under each LRBA. This means one property per borrowing arrangement. You cannot use a single LRBA to purchase multiple assets or a parcel of assets.
The asset must be held in a separate bare trust during the loan term. The bare trustee holds legal title to the asset on behalf of the SMSF until the loan is fully repaid, at which point legal title transfers to the SMSF trustee. The SMSF has the beneficial interest in the asset throughout the loan term.
For related party loans, meaning loans from a related party of the fund such as the business owner or a related company, the ATO has established safe harbour terms that the loan must comply with to avoid scrutiny. These include specific interest rates and maximum loan to value ratios that are updated periodically by the ATO.
Key rules for SMSF LRBAs include:
- Only one asset can be acquired per borrowing arrangement
- The asset must be held in a bare trust during the loan term
- The lender’s recourse is limited to the asset being acquired
- Related party loans must comply with ATO safe harbour terms
- The fund’s investment strategy must address borrowing as a permitted strategy
- The arrangement must satisfy the sole purpose test at all times
- Improvements to the asset during the loan term are restricted
Why Specialist Advice Matters for SMSF LRBAs
An LRBA is one of the most documentation-intensive strategies in superannuation. The arrangement involves multiple legal structures, specific loan documentation, ongoing accounting obligations, and strict ATO compliance requirements that must be met throughout the life of the loan.
Common mistakes we see when LRBAs are set up without specialist support include bare trust deeds that are incorrectly drafted, related party loans that do not meet ATO safe harbour requirements, assets purchased in the wrong name, and ongoing accounting that does not correctly reflect the separation between the bare trust and the SMSF.
These are not minor issues. An incorrectly structured LRBA can result in the ATO requiring the arrangement to be unwound, which can force a sale of the asset at an inconvenient time and generate significant tax consequences for the fund.
At New Wave SMSF, we have specialist experience setting up and managing LRBAs correctly. Our legal team prepares the documentation, our accounting team manages the ongoing compliance, and our financial planning team ensures the strategy makes sense within your broader retirement plan. Everything is handled by one integrated team who understand the full picture.
Who This Service Is For
Our SMSF borrowing and LRBA service is designed for trustees who want to use borrowing inside super to acquire an asset strategically and compliantly.
This service is the right fit if you are:
- A Business Owner Looking to Purchase Your Business Premises
You want to buy the property your business operates from using your SMSF, and you need an LRBA to fund the acquisition. We advise on the strategy, set up the legal structure, and manage the ongoing compliance for the entire arrangement.
- An SMSF Investor Looking to Acquire Property Through Borrowing
Your fund does not have sufficient balance to purchase a property outright but you want to use borrowing to acquire a property asset inside super. We assess the suitability, structure the LRBA correctly, and support the acquisition from start to finish.
- A Trustee with an Existing LRBA That Has Not Been Reviewed
Your fund already has a borrowing arrangement in place but you are not confident the documentation, loan terms, or ongoing accounting are meeting ATO requirements. We review the arrangement thoroughly and address any issues we identify.
- Someone Whose LRBA Loan Is Being Repaid or Refinanced
Your LRBA loan is approaching full repayment or you are considering refinancing with a new lender. We manage the asset transfer process or advise on the implications of refinancing to ensure your arrangement remains compliant throughout.
The New Wave SMSF Difference
Setting up and managing an LRBA correctly requires expertise across accounting, financial planning, and law. At New Wave SMSF, all three sit under one roof.
Legal, Accounting and Financial Planning Working Together
Your LRBA involves legal documentation, ongoing accounting, and a financial strategy that needs to make sense within your retirement plan. At New Wave, the same firm handles all three, so every part of your arrangement is set up and managed by specialists who are working from the same plan.
Specialists in SMSF Borrowing
LRBAs are a specialist area of superannuation law and accounting. We have deep experience setting up and managing borrowing arrangements across a range of asset types and lender structures, including related party loans and commercial bank lending.
Compliance Throughout the Life of the Loan
An LRBA is not a set and forget arrangement. It requires ongoing compliance attention throughout the life of the loan, including annual reporting, interest rate reviews for related party loans, and eventual asset transfer on repayment. We manage all of it proactively so nothing is missed.
Frequently Asked Questions
What assets can my SMSF borrow to acquire?
An SMSF can borrow to acquire most types of assets that the fund is otherwise permitted to hold, including residential property, commercial property, and listed securities. The most common use of an LRBA is to acquire property. The asset must be a single acquirable asset, meaning one property or one parcel of identical securities per borrowing arrangement.
Can my SMSF borrow from a related party?
Yes, your SMSF can borrow from a related party such as yourself, your business, or a related company. However, related party loans must comply with the ATO’s safe harbour terms, which specify minimum interest rates and maximum loan to value ratios. Loans that do not meet these terms may be treated as non-arm’s length income and taxed at the highest marginal rate.
What is a bare trust and why is it needed?
A bare trust is a separate legal structure that holds the asset being acquired under the LRBA during the loan term. The bare trustee holds legal title to the asset on behalf of the SMSF, while the SMSF holds the beneficial interest. This structure is required by superannuation law and protects the other assets of the fund from the lender’s recourse in the event of a default.
Can I improve the property held under an LRBA?
There are strict restrictions on improvements to assets held under an LRBA. You can repair and maintain the asset to keep it in its current condition, but you cannot make improvements that change the character of the asset or add a new asset to the arrangement. These restrictions apply until the loan is fully repaid and the asset is transferred to the SMSF.
What happens when the LRBA loan is fully repaid?
When the loan is fully repaid, the asset must be formally transferred from the bare trust to the SMSF trustee. This process needs to be managed carefully to ensure the transfer is completed correctly and does not trigger unintended stamp duty or tax consequences. We manage this process as part of our ongoing LRBA service.
Ready to Explore Borrowing Inside Your SMSF?
Whether you are considering setting up an LRBA for the first time or you want a specialist team to review an existing borrowing arrangement, our team is ready to help you do it correctly and compliantly.
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Disclaimer
This information is general in nature and does not constitute financial or legal advice. SMSF borrowing and LRBA strategy advice is delivered by New Wave Financial Planning Pty Ltd, an Authorised Representative of NWG Financial Services, AFS Licence No. 538619. Legal documentation services are delivered by New Wave Law. Accounting and tax services are delivered by New Wave Accountants and Business Advisory. For advice specific to your circumstances, please speak with a qualified adviser before acting on any information contained on this page.