Set up an SMSF borrowing arrangement (LRBA)
Your fund can borrow to buy one asset, and the rules for how are exact.Your fund has found the asset but not the full purchase price. A limited recourse borrowing arrangement is the only route superannuation law leaves open. The asset sits in a separate bare trust until the loan is repaid, and the lender’s recourse is limited to that asset alone. The structure is narrow on purpose: one acquirable asset, a loan on arm’s length terms, and no improvements while the loan is on foot. We put the arrangement together so the purchase completes and the fund can still stand behind it at audit.
One asset, properly held
The bare trust is documented for the specific asset being bought, which is what keeps the borrowing inside the exception.
A loan that reads as commercial
Where you are the lender, the rate and the terms are set against the ATO's safe harbour rather than around the kitchen table.
An answer ready for the auditor
The arrangement is recorded well enough to explain itself years later, which is when it is actually examined.
What is a limited recourse borrowing arrangement?
A limited recourse borrowing arrangement, or LRBA, is the one form of borrowing superannuation law permits an SMSF to use. The fund borrows to acquire a single asset, most often property. That asset is held in a separate bare trust until the loan is repaid in full.
Limited recourse means exactly what it says. If the loan defaults, the lender can take the asset in the bare trust and nothing else the fund owns. That containment is what makes the borrowing permissible. It is also why every element of the structure is prescribed rather than negotiable.
Can my SMSF borrow to buy a residential property?
Yes, as an investment, provided the purchase fits the fund’s investment strategy and complies with the superannuation rules. The fund cannot buy it from a related party. No member or relative can live in it or use it, which is where most people come unstuck.
Why does the asset have to sit in a bare trust?
The bare trust holds the asset for the fund until the loan is repaid. That is what limits the lender’s recourse to the asset alone. Once the loan is paid out, the asset transfers to the fund itself.
Can I lend the money to my own fund?
Yes, but the loan has to be on terms a commercial lender would have offered. The ATO publishes safe harbour rates and terms, and a loan that meets them is not second-guessed. We advise on what a related party loan needs to look like.
What can the fund buy this way?
Real property, listed securities and other permitted assets, provided what is bought is a single acquirable asset. The fund cannot improve the asset while the loan is on foot. Business real property is the one category it can acquire from a related party.
Is an LRBA the right way to buy it?
Tell us what the fund wants to buy and where the money is coming from. We will tell you whether it can be done as a compliant LRBA before anything is signed.
An LRBA that fails is unwound at the worst possible time
You have found an asset you want the fund to acquire and the fund cannot pay for it outright. An LRBA is the way through. But the bare trust, the loan terms and the meaning of a single acquirable asset each have to be right. The arrangement is examined years afterwards rather than at the time. A structure that does not hold means selling on the ATO’s timetable instead of yours.
- We will tell you whether the proposed acquisition can be structured as a compliant LRBA.
- We will prepare the bare trust deed and the acquisition documentation.
- We will draft or review the loan against the ATO's safe harbour terms.
- We will advise on what a related party loan has to look like.
- We will coordinate execution and settlement with your lender and your accountant.
The asset is right and the balance is short
Your fund has built a solid balance and there is a property you want it to own. The purchase price sits above what the fund can pay from cash. A bank will lend to the arrangement, or you are considering lending to it yourself through a related entity. You know there has to be a bare trust. You know a related party loan has to meet the ATO’s safe harbour terms, and that the documents matter. What you do not have is a clear account of what each of those requires, and settlement will not wait while you work it out.
What's included in your SMSF LRBA service
- Bare trust deed prepared for the acquisition.
- LRBA loan agreement drafted or reviewed.
- Advice on related party lending and the safe harbour terms.
- Review of the fund's investment strategy against the arrangement.
- Acquisition and trustee documentation.
- Settlement coordination with your lender and your accountant.
What happens when an LRBA does not hold?
An LRBA is examined long after it is set up, usually by an auditor or the ATO. By then the asset has been in the fund for years. A bare trust documented incorrectly. A loan that is not on arm’s length terms. A purchase that turns out to be two acquirable assets rather than one. Each of these takes the arrangement outside the exception that permitted the borrowing at all.
The direction that follows is to unwind it. That means selling the asset, and the fund does not get to choose the market it sells into. Related party loans are the perennial audit target. A rate set to suit the family rather than the safe harbour is visible on the face of the loan agreement. The difference between an arrangement that holds and one that does not sits almost entirely in the documents. They cost very little to get right at the start.
How we make the arrangement hold
We test the proposed acquisition against the LRBA rules before the fund commits to anything. That includes whether what is being bought is genuinely a single acquirable asset. We prepare the bare trust deed and the acquisition documents, and check the loan against the ATO’s safe harbour terms. Where the lender is a related party, we draft it ourselves.
We work alongside your lender and your accountant so the execution order is right. The fund should not be left holding an asset the trust was never properly set up to hold. By settlement, the fund’s position is documented well enough to answer an auditor in five years’ time.
How an LRBA comes together
Three steps from proposed purchase to an arrangement that survives audit.Test the purchase
We check the asset, the loan and any related party involvement against the LRBA rules before the fund commits to anything.
Build the trust
We prepare the bare trust deed and the acquisition documents, and draft or review the loan against the ATO's safe harbour terms.
Settle it cleanly
We coordinate execution and settlement so the asset lands in the bare trust in the right order and the record is complete.
A borrowing arrangement that still holds up in five years
On the surface an LRBA is the simplest thing in the world. The fund finds the property, the fund borrows, the fund buys. The reason it does not feel simple is that everything deciding whether it worked happens in documents you will not look at again. Somebody else will ask to see them first.
Superannuation borrowing is tax law with a property transaction attached, and our Chartered Tax Advisor has held that Tax Institute credential for twenty-five years. We are also ISO 9001 accredited. On a transaction with a settlement date, that means the steps and the order of them are set down rather than improvised.
Our great lawyer guarantee
Six principles we hold to, whatever you bring us and however long it takes.
Take the time
We listen carefully to understand what you want to achieve, then step you through the advice and the documents.
Share our knowledge
We pass on as much as we can, so you can make your own informed decisions.
Stick to our knitting
We only do what we are good at, so you never pay for our learning.
Work as one team
Someone is always available to answer your question or point you the right way.
Fair pricing
A fixed or capped quote for advice and documents, so you do not carry the price risk.
It is your show
We are in it for a front row seat to witness your success, not for our egos.
Get the arrangement right before settlement
Tell us what the fund wants to buy and who is lending. We will tell you whether it can be structured as a compliant LRBA, and what has to be in place before settlement.
More on this area of law
Read more about SMSF borrowing arrangements and buying property inside super.
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