What is an SMSF loan?
An SMSF loan, also known as a Limited Recourse Borrowing Arrangement (LRBA), allows the trustees of a self-managed super fund to borrow money to invest in assets, typically property. It enables SMSF members to use their superannuation savings to leverage investments.
What can I purchase with an SMSF loan?
SMSF loans are commonly used to acquire residential or commercial properties. However, they can also be used to invest in other assets, such as shares or managed funds, provided they meet certain criteria.
Who can apply for an SMSF loan?
Any SMSF with a valid Australian Business Number (ABN) can apply for an SMSF loan. However, the trustees must meet specific lending criteria, and the investment must align with the fund's investment strategy.
What are the restrictions on SMSF loans?
SMSF loans are subject to strict regulations. For example, the purchased property must be held in a separate trust (bare trust), and the loan can only be used to acquire a single asset or a collection of identical assets.
What is a limited recourse loan?
A limited recourse loan means that in the event of default, the lender's claim is limited to the asset(s) purchased with the loan. This protects other assets in the SMSF from being seized to cover the debt. seized to cover the debt.
How are SMSF loans repaid?
SMSF loans are typically repaid from the SMSF's own resources, such as rental income, contributions, or investment returns. Loan repayments must be made according to the loan agreement.
Can I use the property purchased with an SMSF loan for personal purposes?
No, the property acquired with an SMSF loan cannot be used for personal purposes. It must be held solely for investment purposes and not for personal use or to benefit the SMSF members or related parties.