Limited recourse borrowing arrangements by self-managed super funds - questions and answers

Does the arrangement entered into by the SMSF trustee actually involve a borrowing?

It is essential that appropriate documentation clearly reflect that the trustee of an SMSF has made a genuine borrowing to acquire an asset, particularly where the monies provided to acquire the asset are from a related party. If there is not adequate documentation to prove the money provided by a related party was actually borrowed, the amount provided by the related party might be considered to be a contribution received by the fund. This could lead to significant tax consequences if it results in a contributions cap being exceeded.

Sections within The loan and the lender

• Is an SMSF allowed to borrow from a related party?
• Does interest on a borrowing from a related party need to be at commercial rates?
• Does the arrangement entered into by the SMSF trustee actually involve a borrowing?
• Can a related party borrow on a full recourse basis and on-lend the money to the SMSF under a limited recourse borrowing arrangement at a higher rate of interest?
• Does a drawdown from a credit facility give rise to a new borrowing?
• For real property held by the holding trust in a limited recourse borrowing arrangement, can an SMSF trustee draw down under the arrangement to make capital improvements to the real property without contravening the super law?
• Does an arrangement that permits capitalisation of interest or other borrowing charges satisfy the super laws?