SMSF borrowing (gearing)

The general rule is that your self-managed super fund can’t borrow money, although like all rules the ‘no borrowing’ rule has some exceptions.

SMSF trustees need to understand the difference between direct borrowing and indirect borrowing and the special rules that apply to each exception. Your fund can’t directly borrow money, except in two instances: if you need cash to pay a member’s benefit, or if you need cash urgently to settle a share transaction.

Your super fund can also indirectly borrow money. A SMSF can invest in managed funds that borrow money (geared managed funds), or even invest in instalment warrants, warrants, options or contracts for differences (CFDs).

The latest ‘hot’ trend in the SMSF world is the opportunity for a SMSF to indirectly borrow to purchase fund assets, typically an investment property, using a limited recourse borrowing arrangement. For a summary of the SMSF borrowing rules and links to key articles on the topic see SuperGuide article  Government’s green light on SMSF borrowing, with conditions.

Set out below are all SuperGuide articles explaining SMSF borrowing (gearing).

SMSF advice: Is your accountant still allowed to help your fund?

Being the trustee of a self-managed super fund can be a challenging task at times, and most people need a bit of help at certain stages when running a SMSF, particularly when a decision, or strategy, requires financial advice. Traditionally, many Australians have turned to their accountant for … [Read more...]

Government’s green light on SMSF borrowing, with conditions

On 20 October 2015, the Liberal government confirmed that SMSF borrowing, through the use of limited recourse borrowing arrangements, continues to remain a legitimate financing option for SMSFs. Note that in April 2016 however, the ATO released guidelines flagging the expected demise of LRBAs … [Read more...]

SMSF borrowing: Fix related party LRBAs by 31 January 2017, or risk 47% tax

Note: This article deals specifically with SMSF limited recourse borrowing arrangements (LRBAs) financed by related parties, rather than financial organisations. For fixing related party LRBAs, the ATO has extended the final date to 31 January 2017 (previously 30 June 2016). If you’re seeking … [Read more...]

SMSF investment: Borrowing to invest can be the means, not the end

As a property and share investor for nearly 30 years, I believe the use of borrowing can be a legitimate means to purchase assets, but gearing is not an investment in itself: it is simply a means to invest with associated costs and extra risk.Over the years, I have spoken to thousands of … [Read more...]

SMSF borrowing: Investing in property (what’s OK and NOT OK)

If you run a self-managed superannuation fund, you can invest in all types of real property, including residential property, commercial property, industrial property and even a farm (under certain circumstances).Before September 2007, the capacity to use borrowed money to purchase an SMSF asset, … [Read more...]

Revisited: Is property a good investment for your SMSF?

In the past few months, we have received a higher-than-normal number of emails seeking information about investing in property via an SMSF. In response to this upturn in interest, I have revisited the question, is property a good investment for your SMSF?Previously, I have written that I have … [Read more...]

SMSF borrowing: Is a limited recourse borrowing arrangement the same as a non-recourse loan?

Q: Can you differentiate between a limited recourse borrowing arrangement and a non-recourse loan. Are they the same thing?The precise meaning of different terms will depend on the definitions contained in the contract that the loan provider requires a borrower to sign.Generally speaking … [Read more...]

SMSF investment: Where can I find information about SMSF borrowing?

Q: I’ve just finished reading DIY Super For Dummies and found it really helpful. What interested me was the borrowing options for SMSFs. We already own a property in our fund and we are looking at using borrowings for financing our next fund purchase. In your book you mention a joint venture to … [Read more...]

Property and super: What’s the deal? (15 popular Q & As)

We receive many questions from readers about investing in property using super money. Questions range from: ‘Can I withdraw my super to buy a house to live in?’, right through to ‘How can I use my super fund to borrow money to invest in property?’.For the convenience of our 2 million readers, I … [Read more...]

SMSF investment: Can my DIY super fund invest in direct property?

Q: I am interested in setting up a self-managed fund. I would like to know more about the rules for purchasing property in a super fund, and whether it is possible to use borrowings to do so.A: A self-managed (DIY) super fund can invest in all types of property, including residential, … [Read more...]

SMSF investment: Purchasing overseas property

Q: Since we can now use super to purchase real estate, is this also true for property in the United States? Can you provide me with some guidance on how I could find out the process and correct entities to establish in order to do this? Thanks.A: Before I answer your question, I need to clarify … [Read more...]

SMSF investment: Buying commercial property, and borrowing options

Q: My wife and I purchased a licensed post office and freehold from Australia Post 20 years ago. In addition to the licence, we acquired one title with one building (part of the building is leased to a commercial tenant and part we use to run the post office). A freestanding shop was added in 2002. … [Read more...]