

Limited Recourse Borrowing Arrangements (LRBAs) for SMSFs
A Limited Recourse Borrowing Arrangement (LRBA) allows a Self-Managed Super Fund (SMSF) to borrow money to purchase an asset, such as residential or commercial property, while protecting the fund’s other assets from claims by lenders.
At HelloLedger, we assist SMSF trustees with understanding the rules, compliance requirements, and documentation involved in setting up an LRBA, ensuring your fund meets ATO regulations every step of the way.



What Is a Limited Recourse Borrowing Arrangement?
An LRBA is a type of loan arrangement that enables an SMSF to borrow funds to buy a single asset (or a collection of identical assets with the same value) held in a separate trust.
The “limited recourse” aspect means that if the SMSF defaults on the loan, the lender’s recourse is limited to the asset purchased under the arrangement. The lender cannot seize other SMSF assets, protecting the fund’s overall portfolio.
How Does an LRBA Work?
1. Bare Trust Setup:
The purchased asset is held in a bare trust with the SMSF as the beneficial owner.
2. Loan Agreement:
The SMSF borrows funds under a loan agreement to purchase the asset.
3. Repayments and Ownership:
- Loan repayments are made from the SMSF’s bank account.
- Once the loan is repaid, the legal ownership of the asset is transferred to the SMSF.
What Assets Can Be Purchased Under an LRBA?
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Residential Property: Must meet the Sole Purpose Test and cannot be used by members or related parties.
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Commercial Property: Can be leased to a related party (e.g., a member’s business) at market rates.
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Shares or Units in Trusts: Investments must comply with superannuation laws.
Compliance Rules for LRBAs
1. Single Acquirable Asset Rule
An LRBA can only be used to purchase a single acquirable asset or a collection of identical assets (e.g., shares). If the asset is subdivided or improved during the loan period, it may breach compliance rules.
2. No Alterations to the Asset
Improvements or significant renovations that alter the asset’s character cannot be funded through the loan. Repairs and maintenance, however, are allowed.
3. Loan Must Be Non-Recourse
The loan must be non-recourse, meaning the lender’s claim is limited to the purchased asset and does not extend to other SMSF assets.
4. Arm’s Length Terms
If the loan is obtained from a related party, it must be made on commercial terms to avoid non-arm’s length income (NALI) tax penalties



Benefits of Using an LRBA
1. Asset Growth Through Leverage
SMSFs can leverage funds to acquire high-value assets and build wealth for retirement.
2. Tax Advantages
- Rental income is taxed at 15% (accumulation phase) or 0% (pension phase).
- Capital gains tax (CGT) may be discounted to 10% if the asset is held for more than 12 months.
3. Asset Protection
The limited recourse structure protects the SMSF’s other assets from being at risk if the loan defaults.
Risks and Considerations
1. Liquidity Concerns:
Loan repayments must come from the SMSF’s balance, so trustees must ensure there’s enough liquidity to meet repayments and fund obligations.
2. Valuation and Compliance Risks:
Regular valuations are required to ensure the asset meets market value and audit requirements.
3. Penalties for Non-Compliance:
Breaching superannuation borrowing rules can lead to ATO penalties and the fund being deemed non-compliant.
HelloLedger provides compliance checks, documentation reviews, and reporting support to help trustees manage these risks.


Limited Recourse Borrowing Arrangements (LRBAs) FAQs
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Can an SMSF borrow money to buy property?
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Yes, SMSFs can borrow money using an LRBA to purchase residential or commercial property, provided the loan and purchase comply with ATO rules.
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Can I renovate a property purchased under an LRBA?
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You can repair and maintain the property, but improvements that alter its original form cannot be funded through the loan.
Can I buy property from a related party using an LRBA?
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Residential property: No, SMSFs cannot buy residential property from related parties.
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Commercial property: Yes, provided it is purchased at market value and leased at arm’s length terms.
Are LRBAs subject to higher audit scrutiny?
Yes, LRBAs require detailed documentation and are subject to audit checks to ensure compliance.
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What happens if an SMSF breaches LRBA rules?
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Breaches can result in the fund being non-compliant, leading to penalties, loss of tax concessions, and forced asset sales.
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Does an LRBA need to be repaid before retirement?
No, the loan does not need to be repaid before retirement, but repayments must continue until the loan is fully paid off.
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Can an SMSF use multiple LRBAs?
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Yes, SMSFs can have multiple LRBAs to acquire separate assets, but each loan must comply with ATO rules.
Can HelloLedger assist with LRBAs?
Yes, HelloLedger provides:
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Compliance checks for LRBAs.
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Loan documentation reviews.
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Tax reporting and arrange your Fund annual audits to meet ATO requirements.