Limited Recourse Borrowing Arrangement

Leveraging property portfolio with Limited Recourse Borrowing Arrangement

From the 24th September 2007, super funds are permitted to enter into a limited recourse borrowing arrangement (LRBA) to leverage their investment property portfolio. This is made possible with the introduction of sections 67A and 67B of the Superannuation Industry (Supervision) Act 1993 (SIS Act). Property investment through self managed superannuation funds is an option available for consideration to trustees. Prior to 24th September 2007, self managed superannuation were required to contribute 100% of the purchase price of a residential property investment. Direct property investment within a self managed superannuation fund – was an attractive option, but not financially feasible for most trustees.

Limited recourse borrowing arrangement has enabled trustees to control a much larger asset pool, than what would be the case if a self funded super relied solely on its own funding. In practical terms, this can translate to a higher return on investment (ROI) in a rising property market, as any compounded returns are magnified.

Prior to these changes in superannuation rules, only self managed super funds with large reserves of cash balance in their bank accounts could participate in direct property purchases. Every other property investor would have to purchase real estate outside of the superannuation environment resulting in a loss of concessional tax status – general tax of only 15% in accumulation phase, and 0% in pension phase.

Depending on the major financial institutions lending criteria, it is possible to borrow up to 70-80% of the purchase price of properties.

Why Consider Limited Recourse Borrowing Arrangement (LRBA) with Superannuation Saving

Property investors contemplating on purchasing residential property must observe and adhere to the borrowing regulations. On paper, the owner of the property will be the self managed super funds. The title of the property can be controlled by the trustees. The borrowing rules of limited recourse borrowing arrangement offers protection for other assets held within the fund, as the loans are structured such that lenders do not have any other recourse to the other assets within the fund. In the event the self managed super fund loans default, trustees are not obliged to disposal of other assets within the Fund e.g. share holdings, to cover for any losses incurred by the property investment. Complete protection for all other superannuation assets are provided by the limited recourse borrowing arrangement.

Legal Documentation

Superannuation Trust Deed

The superannuation deed needs to provide specific powers so that trustees can enter into such an arrangement. It is pertinent to have a superannuation deed to distribute this power rather than relying on the general powers of the fund. All superannuation trust deeds prepared by SATO SMSF Administration have been drafted with this in mind. If your trust deed is outdated, it may need to be amended to bring the specific clauses up to date.

Bare Trust

To enter into a limited recourse borrowing arrangement, a bare trust (also known as a custodian trust) would need to be established. The trustee should play a minimal role when managing the investment property. The trustees will become the legal owner of investment property, and act in the best interest of the members of the fund. The trustee of the bare trust can be individual trustees or a special purpose corporate trustee. The self managed superannuation fund becomes the beneficial owner of the property and is entitled to rental income from the investment property.

The self managed super fund can request the trustee to transfer ownership to the fund. However, the trustees have no obligation to fulfill such request. In such an event, the SMSF property will be sold, the limited recourse loans paid off in full and any remaining balance will be added to the self managed super fund.

Limited Recourse Loan

Trustees are required to enter into this arrangement as it provides the lending institution the right to recover any money that is owed by the fund, only by selling the investment property. This means the loan is not secured against any other assets held within self managed super funds. Commercial lenders who request for a charge over the fund’s beneficial interest other than the investment property, are deem to be in conflict with the specific provisions of sections 67A and 67B of the Superannuation Industry (Supervision) Act 1993.

Purchase Self Managed Super Fund Property

The purchase of the property investment should be in the name of the trustees. Stamp duty will be incurred as with any purchase of real estate properties. The second step would be to transfer the investment property into the bare trust, which would not incur any additional stamp duty. Investment properties purchased off the plan would minimize stamp duties, as opposed to buying established investment properties.


The bare trust should provide the mortgage to secure the property investment. It is important for trustees to understand the rights of the mortgage so that they can understand their rights and what can happen when the investment property is subsequently sold.

Taxation Matter

The stamping of the bare trust deed by the State Revenue Office (SRO) may incur stamp duties, depending on which state the bare trust was established:

Australian Capital Territory – $200New South Wales – $50
Northern Territory – $20Queensland – NIL
South Australia – NILVictoria – NIL
Western Australia – NIL
When the investment property is transferred to the fund there should not be any capital gains tax payable on the property as long as the bare trust plays a minimal role in the management of that investment property. Investment property transfer will not be liable for GST under the bare trust structure, provided the bare trust (corporate trustee) is not operating as a business. This is the emphasis on why a special purpose corporate trustee is preferred. Limited recourse borrowing arrangement has been accepted by the wider investment community. Give our office a call today to discuss about the opportunities that limited recourse borrowing arrangement can provide in leveraging your property investment portfolio inside your superannuation savings. Please refer to our professional fees guide for further information on bare trust structures.

Privacy Statement

Your personal information is protected by law, including the Privacy Act 1988 (Cth) (Privacy Act) and the Australian Privacy Principles (APPs). Personal information may include your name, date of birth, contact details and your personal circumstances. Your employment history may also be required where a loan application is made with the major banking and lending institutions. The personal information you provide to SATO SMSF Administration is collected on behalf of the Australian Government, APRA and the Australian Taxation Office in order to provide you with the appropriate service level agreement and support, including:

  • Delivering the agreed service and support – whether by phone or email;
  • Helping in evaluating and monitoring the self managed superannuation fund established on your behalf;
  • Contacting you about potential opportunities as they become available;
  • Helping to resolve complaints made by you; &
  • Involving you in surveys conducted by the broader superannuation community.

If you do not provide some or all of your personal information, SATO SMSF Administration® cannot ensure that you are provided with the most suitable level of support and assistance. Your personal information (including sensitive information) may be passed onto and between Government agencies involved in the administration of self managed super funds – including Centrelink, the Department of Human Services, the Department of Education and Training, the Department of Immigration and Border Protection, the Department of Social Services, the Department of the Prime Minister and Cabinet and the Australian Taxation Office and their respective contracted providers where those providers are delivering  services to you.

In addition, your personal information may also be shared with third party Government agencies. Your personal information may also be used by SATO SMSF Administration or given to other parties where you have agreed, or where it is otherwise permitted, including where it is required or authorised by or under an Australian Law, such as social security, a court or tribunal order, or where a duty of care exists.

We respect your privacy

Where SATO SMSF Administration is approached to establish a limit recourse borrowing arrangement, we will require information from you to compile your loan application or provide other services to you. The information collected by your client service manager may not be required by law, however, our service to you will be restricted if the information collected is incomplete. To assist you in obtaining finance, information will be passed onto SATO SMSF Administration® and to the finance providers you choose. Information may also be disclosed to contractors (including for example, lawyers and accountants). We respect your privacy and welcome your enquiries. You can make any requests relating to your personal information being held by us, or any complaints regarding treatment of your privacy.

If you have any concerns

For concerns regarding your loan application, your dealings with SATO SMSF Administration®, or if you believe an error has occurred, please liaise with your client service manager. If you are not happy with the proposed resolution or the way the matter is handled, you can contact our Compliance and Corporate Standards Manager, who will work with you to resolve your situation. If you are still not satisfied, you have the option of contacting the Credit Ombudsman Service via: Phone: 1300 780 808 Web:



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