SMSF loans: What are the SMSF borrowing rules?

There have been a number of changes made to the self-managed superannuation fund (SMSF) borrowing rules over the years. The most significant of these changes occurred in 2007 when the rules were somewhat relaxed to allow an SMSF to borrow to acquire certain assets.

Although these loans were originally allowed for investment in shares, restrictions around the rules mean they are now used predominantly for property assets.

Other more recent legislative changes make it possible for SMSFs to acquire property with limited recourse borrowing arrangements (LRBAs) using a holding trust. 

Before these changes, there were strict rules around borrowing within an SMSF that only allowed short-term borrowings and in very limited circumstances.

Your SMSF can borrow money for a short time if that amount is less than 10% of the fund’s total assets. Those circumstances are:

• A maximum of 90 days to meet benefit payments or to pay an outstanding surcharge liability, or
• A maximum of seven days to cover the settlement of security transactions. You can also only do this if you did not think you would need to borrow funds when you bought the securities.

All of these transactions need to be on an arm’s-length basis – that is, at an appropriate market rate of return.

Borrowing to invest

The only other time you can borrow within your SMSF is to acquire an eligible asset via limited recourse borrowing arrangements (LRBAs). Once again, certain rules apply.

An LRBA involves an SMSF trustee taking out a loan from a lender and purchasing a single acquirable asset (or collection of identical assets with the same market value) with the borrowings.

The asset must be held in a separate holding (bare) trust and any investment returns earned from the asset accrue to the SMSF. Expenses relating to the asset also need to be paid by the SMSF.

In the case of default on the loan, the lender’s rights are limited to the asset held in the separate trust; that is, there is no recourse for the lender to pursue other assets in the SMSF. That’s why these loans are referred to as ‘limited recourse’.

Just like any investment you make within your SMSF, any asset you purchase via a loan needs to be for the sole purpose of providing a retirement benefit to the SMSF members. This also forms part of the SMSF investment strategy, which states how that investment will benefit the overall outcome of the fund.

When developing an investment strategy for your SMSF, you should consider and explain how the loan will be serviced at the same time as meeting all other fund expenses.

If, for example, the SMSF needs to pay a pension in the future, the investment strategy will outline how it will be paid while servicing the loan or whether the asset will be sold.

An investment strategy would also need to explain why a fund had allocated a significant portion of its funds to an illiquid asset if it had very few other investments.

Both borrowing and investing in property must also be allowed in the SMSF’s trust deed.

How popular is SMSF borrowing? 

Limited recourse borrowing arrangements have become a very popular way to acquire large assets within SMSFs, mainly used for direct property purchases. 

As of September 2025, more than $75 billion in assets was held under limited recourse borrowing arrangements within SMSFs. This compares to the $53 billion in assets held in such arrangements just five years earlier (September 2020) and $22 billion in September 2015.

How does SMSF borrowing work?