SUPER BORROWING GENERALLY
The trustee of a self-managed superannuation fund (SMSF) will often, by virtue of the trust deed of the fund, have the power to borrow, in limited circumstances and subject to strict requirements.
BORROWING TO INVEST IN PROPERTY
An SMSF is able to invest in property.
Aside from acquiring the property outright using the funds held in the SMSF, the SMSF can borrow from a third party financier under a limited recourse borrowing arrangement (LRBA).
Under an LRBA, the trustee is subject to stringent requirements, such as ensuring the property documentation is in place with respect to ensuring the funds are used to be the “single acquirable asset”. Further, fund members are unable to reside in the property or use it as a “holiday residence”, and there are restrictions on improvements.
Generally the trustee is not able to improve the asset without any such improvement being treated as a contribution to the SMSF.
CONSEQUENCES OF BEACHING LRBA RULES
Not following the LRBA rules can result in penalties and fines being enforced by the ATO against the trustee, or the fund being made non-complying.