SMSF Loans: How They Work and What You Need to Know
A Self-Managed Super Fund (SMSF) can be a powerful way to take control of your retirement savings. One of the strategies available to SMSF trustees is to use the fund to borrow and invest in property under a Limited Recourse Borrowing Arrangement (LRBA). Here’s what you need to know before considering this option.
What Is an SMSF Loan?
An SMSF loan (also known as an LRBA) allows your fund to borrow money to purchase an investment property, while keeping other SMSF assets protected. If the loan cannot be repaid, the lender’s recourse is limited only to the property purchased — not the entire fund.
Benefits of an SMSF Loan
– Leverage your super: Purchase larger assets than your SMSF balance alone could afford.
– Diversification: Spread your retirement investments across different asset classes, such as residential or commercial property.
– Rental income & capital growth: Rental returns and property growth stay within the SMSF, helping to grow your retirement savings.
– Tax advantages: Rental income may be taxed at a concessional superannuation rate, and capital gains can be discounted if the asset is held long-term.
Important Considerations
– Strict compliance rules: SMSF borrowing must comply with ATO regulations and your trust deed.
– Costs and setup: Establishing a bare trust structure, lender fees, and ongoing compliance costs can add up.
– Lender restrictions: Fewer lenders offer SMSF loans, and lending criteria can be stricter than for personal loans.
– Cash flow: Your SMSF must have sufficient contributions and rental income to meet loan repayments and expenses.
– Property restrictions: The property must meet the “sole purpose test” — it must be an investment for retirement benefits, not for personal use.
Steps to Set Up an SMSF Loan
1. Confirm your SMSF trust deed allows borrowing.
2. Establish a bare trust (holding trust) to legally hold the property.
3. Apply for finance through an SMSF-approved lender.
4. Ensure compliance with ATO and lender requirements.
5. Complete settlement and manage repayments from SMSF cash flow.
How We Can Help
At St George Tax Care Pty Ltd, we guide trustees through the entire SMSF loan process:
– Reviewing your SMSF deed and compliance requirements
– Setting up the required trust structures
– Coordinating with lenders and preparing documentation
– Advising on tax and long-term investment implications
📞 Contact us today to discuss whether an SMSF loan is the right strategy for your retirement planning.
