Watch SMSF borrowing rules for separate assets


The superannuation law allows SMSFs to borrow to acquire assets. The law, referred to as a ‘limited recourse borrowing arrangement’ (LRBA), is complex. You need to establish a separate trust structure (known as a ‘bare trust’), separate trustee, and you must ensure that the purchase documents and loan contracts are correctly worded. You also need to do things in the appropriate order to comply with the superannuation law, the income tax law as well as stamp duty obligations. SMSF trustees should not attempt to enter into LRBAs without first consulting with a reliable SMSF specialist.

Understanding ‘single acquirable asset’

Under a LRBA, an SMSF can only borrow to acquire a ‘single acquirable asset’. The term ‘acquirable’ is important because if an SMSF purchases an asset from a related party of the members of the SMSF, it can only be an asset that is permitted under the law, such as listed securities and properties that are exclusively used in a business. If the asset is owned by an unrelated party, then it can be anything as long as the acquisition is in accordance with the SMSF’s trust deed and its investment strategy.

For real estate, a single asset is a property on one title. If the property is on two titles, it is treated as two separate assets, unless there is a unifying physical object attached to the land which is permanent in nature, not easily removed, and is significant in value relative to the value of the asset. If there is also a requirement under a law of a State or Territory that the two assets must be dealt with together, then it will be treated as a single asset. Be very careful with commercial and primary production properties in particular, as I have met clients wanting to purchase car yards and farms where the businesses are conducted on land spread over multiple titles where there were no restrictions in selling these titles separately. In order to purchase the properties, more than one LRBA needed to be established. This means, more than one bare trust needs to be established where each bare trust only holds one property title.

Trustees should also be wary of advice that encourages them to use multiple trustees for bare trusts. I have seen SMSF trustees who have been advised that where there are multiple LRBAs and multiple bare trusts, they need to have a different trustee for each bare trust. This advice is incorrect. You can have the same trustee to act as the trustee of all the bare trusts.

If the acquirable asset is listed shares, it needs to be a collection of identical shares that have the same market value, and were purchased in one single transaction at the same price. If the shares were purchased over a number of different transactions at different times and at different prices then more than one LRBA and more than one bare trust need to be established.

Some SMSF trustees believe it is a requirement for the bare trust to be a corporate trustee. This is also incorrect. The law does not state that the trustee must be a corporate trustee. An individual can act as the trustee of the bare trust as long as the same individual does not act as the trustee of the SMSF. I should point out that some lending institutions prefer the trustee of the bare trust to be a company; however, it is not a legal requirement.

I have assisted clients who have established LRBAs incorrectly due to incorrect advice received from professionals who do not fully understand the law. Although we resolved some issues, the initial bad advice cost clients a lot of stress and money.


Monica Rule is an SMSF specialist and author of ‘SMSFs and Properties’. See This article provides general information only and does not take into account your individual objectives, financial situation or needs.

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