• Mark Davis


In years gone by, SMSFs were unable to borrow money for the purpose of purchasing an investment such as property or shares. However, since 2007 superannuation laws have allowed an SMSF to borrow money in order to purchase an investment asset, as long as a strict set of rules are followed.

Under the superannuation borrowing rules, an SMSF can borrow money to buy any type of asset permitted by the superannuation law. This includes property, both residential and commercial, as well as shares and managed funds. However the usual superannuation rules continue to apply where the fund is purchasing an asset from a related party.

While the rules do not restrict the type of asset that can be purchased, due to the requirements under the superannuation borrowing rules – referred to as Limited Recourse Borrowing Arrangements (LRBAs) – SMSFs have primarily borrowed money to purchase property investments.


In the past, SMSF trustees may have found it difficult to consider direct property investments as they may not have had sufficient funds available to buy the property outright.

Similarly, where an SMSF may have had sufficient funds, it would often have resulted in a significant portion of the fund’s assets being invested in direct property which impacted on the fund’s ability to adequately diversify its investments. As such, the ability to borrow through an SMSF can assist the fund to buy direct property, catering for both of these situations.

If you already own business premises, this ability to borrow can also help to facilitate the transfer of these premises into your SMSF should the circumstances permit.

While it is true that SMSF borrowings have predominantly been used to acquire property investments, they can also be used to buy other investments such as shares. By borrowing, a fund increases its ability to buy larger shareholdings which in turn can provide higher levels of overall growth and income – not to mention maximize the benefits associated with franking credits inside an SMSF.

And finally, when you borrow money to purchase an investment in your own name, you will generally receive a tax deduction for any interest you pay on this loan. But you will not receive a tax deduction on principal repayments. Where an SMSF borrows money, it is responsible for making loan repayments. However, in order to make these loan repayments, the fund will use its investment earnings (e.g. rent or dividends), and/or contributions that you make to your fund.

So, if you are making fully tax deductible contributions into your fund, either directly or through your business, and these contributions are being used by your fund to make principal and interest loan repayments – the result is similar to receiving a tax deduction for principal loan repayments.


While there are a number of important rules and considerations, let’s take a look at some of the more important ones.

Firstly, the asset that your fund purchases with the borrowed money must be a single acquirable asset as defined by superannuation law. This generally means that the borrowed money can only be used to buy one property, or in the context of shares, a parcel of identical shares in the same company (acquired at the same time).

As a result, an SMSF cannot buy several properties under the one borrowing arrangement. Similarly, borrowed money cannot be used to buy a share portfolio investing in shares across different companies – this is part of the reason why borrowing to buy shares through an SMSF has not been popular.

Secondly, where an SMSF has borrowed money to buy an asset, this asset cannot generally be improved upon nor replaced while the loan is still outstanding. This means an SMSF cannot borrow to facilitate a property development. Similarly, because assets cannot be replaced, share investments cannot be actively traded – another reason why borrowing money to buy shares through an SMSF has not been popular.

Thirdly, in order to ensure that borrowing through your SMSF does not place other retirement investments held in your SMSF at risk, the asset that is purchased under a borrowing arrangement must be held in a specific holding trust until the loan is repaid. Further, the only SMSF asset that can be used as security for this loan is the asset that is held within this trust – hence the name Limited Recourse Borrowing Arrangements – which helps to protect other assets held inside your SMSF.


Interestingly, the rules that allow SMSFs to enter into Limited Recourse Borrowing Arrangements also allow for the lender to be anybody you want it to be, provided it is a genuine loan.

So, depending on what circumstances are most appropriate for you and your fund, a loan can be obtained from either a bank or other lending institution, or you, your business, a family member or your own company or trust could provide the loan to your SMSF.

In some cases, you can even consider borrowing money personally and then on-lending that money to your SMSF, allowing a greater degree of flexibility.

Providing a related party loan to your fund, presents an opportunity to quickly get money into your superannuation fund – over and above the contribution caps – to allow your fund to purchase an investment asset.

Also, because it is a loan, as opposed to a contribution, the money lent to your fund will be repaid to you over time – so your money will not be locked in the superannuation system until retirement. This has been an attraction of LRBAs for younger persons who wish to generate profits with the SMSF at low tax rates whilst retaining access to the loan capital.

Of course, as with any transaction your fund enters into the arm’s length requirements must be considered. Generally this requires transactions to be entered into and carried out on commercial terms. Therefore, the terms and conditions of the loan must be carefully considered to not infringe the superannuation laws or attract tax penalties.

Also, any interest you receive from your fund will be taxable. Of course, if you have expenses that you have incurred in providing this loan to your fund, for example interest payable under an on-lending scenario, these expenses will likely be tax deductible – thus offsetting some of the tax.


Should you decide to borrow through your SMSF, an appropriate exit strategy is critical. As part of an exit strategy insurance, such as life and disability cover, can play an integral role in ensuring your fund has the necessary resources to repay outstanding loans should something unexpected occur.

Equally, general insurance is important in protecting the asset itself. For example, if property is destroyed, insurance proceeds can be used to repay any outstanding loan amount, avoiding the likelihood of lenders looking to take action on personal guarantees.

Finally, there are a number of complexities when it comes to matters concerning stamp duty and other taxes that have not been discussed here. To avoid falling into any unpleasant traps, it is important that you seek advice before proceeding to ensure that you follow the right path to success.


1. You should consider your personal circumstances before deciding whether an SMSF is right for you.

2. You can structure your fund as an individual trustee or a corporate trustee. The structure you choose will influence how you administer your fund, so it’s important you choose a structure that meets your needs. For example, some things to consider include how many members your fund will have and if you plan to invest in property within your super.

3. Create Your SMSF and Trust Deed

4. Register with the ATO: Once your fund is established and all trustees have been appointed, your accountant will register your fund with the Australian Taxation Office (ATO) on your behalf. They will prepare a notice of election to become a regulated fund and registration for an Australian Business Number (ABN), Tax File Number (TFN) and Goods and Services Tax (GST).

5. Set up a bank account and rollover your superannuation

6. Your fund must have an investment strategy which is like a mini business plan for your SMSF, providing a guide to your investment decisions. Your strategy must be in writing and be reviewed regularly. It should take into account things such as your risk profile, as well as your fund’s investment objectives and cash flow

7. Under SMSF rules, you are required to consider the life insurance needs of your fund’s members as part of your SMSF’s investment strategy.

8. Start Investing: This is where you begin to take control of your super and, guided by your investment strategy, decide where and how you will invest your super money. SMSFs generally have a mix of cash, term deposits, direct equities, managed funds and property.

9. As SMSF compliance can be complex, having a quality support team to help manage your fund is really important.

10. As a trustee you have certain responsibilities. It’s important to stay on top of changes in regulations as these changes may impact your trustee responsibilities.


There are specific documentation requirements for a Super Fund Home Loan, including, but not limited to:

Home Loan Application Form

Self Managed Fund Documents

– Certified copy of Trust Deed

– Bank statements, showing evidence of member contributions and funds to complete

– If Company Trustee

Certificate of incorporation Accountant’s letter confirming Company Trustee does not trade Property Custodian

– Certified copy of Trust Deed

– Certificate of Incorporation

Evidence of ability to service the loan

– If the loan requires additional contributions to service the debt, then the bank will need to confirm the customers financial position, via evidence of income, assets and expenses

Financial Advice Letter Last 2 years

– If self employed – business tax returns and financial statements

– Individual tax returns and Notice of Assessments for each member

– If existing fund – SMSF Tax Returns and financial statements – working account and loan statements

Evidence of rental income

– Copy of existing lease / managing agent statement / real estate declaration.

A copy of the relevant pages of the Contract for Sale Please note: Super Fund Home Loans must be referred to a Bank Panel solicitor for review of the SMSF Trust Deed and the Custodian Trust Deed prior to settlement.

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