SMSF Borrowing & Loans

Borrowing to invest may result in faster wealth accumulation with greater tax benefits.

However, it is vital to obtain professional advice if you are borrowing money using your Self Managed Super Fund (SMSF).

Please read on to find out how we can help you obtain a loan for your super fund!

SMSF loans

Borrowing to buy a property in a superannuation fund can be achieved via a structure known as an instalment warrant.

With an instalment warrant, the fund can buy a property using up to 100% borrowed funds.

This is one of only a few forms of borrowing permitted under superannuation legislation.

The superannuation fund trustee can borrow to acquire a beneficial interest in an asset that is held on trust.

The property must be held in a privately established trust within the super fund. The trust is referred to as a bare trust.

What is an instalment warrant?

Under an instalment warrant the fund makes an up front payment of the purchase price. The SMSF then borrows the remainder of the purchase price from the lender that issues the warrant. The fund then subsequently pays off the loan, plus interest, in installments made every year, until it owns the property outright.

The SMSF is entitled to all income and profits generated by the property and the lender has the benefit of the interest and security over the asset.

If the fund defaults on the loan, the creditor only has recourse to the security property. This protects the other assets in the fund.

Limited Recourse Borrowing Arrangements

This is the technical term for SMSF borrowing. SMSFs can now borrow to purchase an investment asset as long as the borrowing is only secured by that asset.

No other assets of the fund can be used as security.

Where multiple assets are being purchased as one larger asset (e.g. a strata title apartment block with many units) each title must have its own separate borrowing arrangement.

Who can a SMSF borrow from?

Super funds can borrow from any source including members, related parties and traditional sources of finance such as banks.

Who can be a trustee?

We recommend that the trustee of the bare trust is a company.

However, the trustee of the bare trust must not be identical to the trustee of the superannuation fund.

The property is held on trust so that the super fund receives the beneficial interest in the investment.

The beneficial interest includes the right to income earned by the investment.

When will the SMSF own the property?

When the loan is repaid the legal ownership of the investment is transferred to the superannuation fund.

It is possible for the investment to be sold prior to the transfer of the property to the SMSF.

Any profit made on the sale of the property will be transferred to the superannuation fund.

What if the property makes a loss?

If a loss was made on the sale of the property, the lender would still only be able to recover the outstanding amount on the loan, solely from that property that was sold.

This is due to the limited recourse nature of the loan.

The lender does not have the right to recover any of the outstanding loan from the other investments of the superannuation fund.

To find out more about SMSF investments and borrowing please enquire online. We can assess your fund and help you get a competitive loan from one of the major banks! Get expert help today!

Managing your SMSF

Managing your SMSF can be a daunting task. There are always plenty of questions you need to ask especially because your SMSF is your future.

Trust or super fund loans can become quite complex! We recommend that you speak to a financial advisor and use a mortgage broker to help you apply for a loan.

Know the regulations

The first thing you should do when dealing with a SMSF is seek advice from your accountant and/or financial advisors!

This is very important as there are several different regulations which need to be followed when purchasing a property using your SMSF.

Speak to us!

Using a mortgage broker can save you money! We can help you find a loan that fits your situation and has the best interest rates around!

Some lenders won’t lend money to Self Managed Super Funds, but our brokers know exactly which banks do and how to get your loan approved.

To get in touch with a mortgage broker that knows how banks view SMSF loans, please enquire online today!

Note: this website is for informational purposes only and should not be substituted for professional financial or taxation advice.