Borrowing
Your Self Managed Super Fund can borrow money only in very limited circumstances. These circumstances include:
- Borrowing money for a maximum of 90 days to meet benefit payments due to members or to meet an outstanding surcharge liability (the borrowings can’t exceed 10% of your fund’s total assets)
- Borrowing money for a maximum of seven days to cover the settlement of security transactions if the borrowing does not exceed 10% of your fund’s total assets (you can only borrow to settle security transactions if, at the time the transaction was entered into, it was likely that the borrowing would not be needed)
- Borrowing using installment warrants or limited recourse borrowing arrangements that meet certain conditions.
What is limited recourse borrowing?
A limited recourse borrowing arrangement requires an SMSF trustee to take out a loan from a third party lender. The trustee then uses those funds to purchase a single asset (or collection of identical assets that have the same market value) to be held in a separate trust.
Any investment returns earned from the asset go to the SMSF trustee.
If the loan defaults, the lender’s rights are limited to the asset held in the separate trust. This means there is no recourse to the other assets held in the SMSF.
Want to know more about SMSF lending? Contact David your local mortgage broker in Randwick.