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

Can a related party to the SMSF give a mortgage to the lender over an asset of the related party?

Arrangements entered into on or after 24 September 2007 and before 7 July 2010

Yes. Under the super law the recourse of the lender against the SMSF trustees in the event of a default on the borrowing must be limited to the asset that is being acquired under the arrangement. However, a third party can mortgage one of their assets (in which the SMSF does not have an interest) to the lender to provide the lender with additional security.

Arrangements entered into on or after 7 July 2010

Yes, provided the related party or any other person has no rights of recourse against the SMSF trustee in the event that the mortgage is exercised by the lender (for example, if the SMSF trustee defaults on the borrowing), other than rights relating to the asset being acquired under the arrangement.

Sections within Lenders recourse and charging the asset being acquired

• Will granting the lender a right of recourse over the underlying asset lead to a contravention of the prohibition against charging a fund asset?
• Can an SMSF member provide a personal guarantee to the lender in a limited recourse borrowing arrangement?
• Can a related party to the SMSF give a mortgage to the lender over an asset of the related party?
• Can the asset being acquired be used as security other than in respect of the borrowing by the SMSF trustee?