Matters trustees should take into account

Trustees should always consider the quality of the investment they are making and whether their fund can meet all future obligations under the arrangement. A trustee of an SMSF can only enter into such an arrangement where it is consistent with the investment strategy of the fund.

The governing rules of an SMSF must allow the trustee of the fund to borrow before any instalment warrant-type arrangement or any other LRBA can be entered into.

What assistance is available from us?

You can apply for self-managed super funds specific advice (SMSFSA) about:

  • your own SMSFs affairs
  • another person's SMSFs affairs if you are their agent or legal personal representative.

An SMSFSA sets out the Commissioner's opinion on the way the super laws apply, or would apply, to your SMSF in relation to a specified arrangement or circumstance.

See also:

General prohibition on borrowing

Subject to limited exceptions allowed under SISA, trustees of SMSFs are prohibited from borrowing money.

Advice about the general prohibition and a list of exceptions is given in the ruling SMSFR 2009/2.

Find out about:

  • SMSFR 2009/2 Self Managed Superannuation Funds: the meaning of 'borrow money' or 'maintain an existing borrowing of money' for the purposes of section 67 of the Superannuation Industry (Supervision) Act 1993.

Amendments to the super law applied from 24 September 2007 - limited recourse borrowing arrangements

From 24 September 2007, super funds could invest in certain LRBAs involving borrowing money to acquire a permitted asset. Those arrangements must meet the conditions set out in former subsection 67(4A) of the SISA.

Those rules continue to apply to LRBAs that were entered into before 7 July 2010, but new rules apply to new arrangements.

The rules apply to all regulated funds, not just SMSFs; however, this document only provides guidance in respect of the application of the law to SMSFs.

How are we dealing with SMSFs that invested in instalment warrant products before 24 September 2007?

If you are a trustee or director of an SMSF that invested in an instalment warrant allowed under former subsection 67(4A) of the SISA before 24 September 2007, we will not issue a notice stating your fund is a non-complying fund solely on the basis of the investment.

However, if you invested before 24 September 2007 in an instalment warrant product that does not meet the requirements of former subsection 67(4A), we will decide on a case-by-case basis what action will be taken.

Amendments to super law applied from 7 July 2010 - changes for limited recourse borrowing arrangements

The super laws were amended for LRBAs by super funds entered into on or after 7 July 2010 so that:

  • super fund assets are better protected in the event of a default on a borrowing
  • the asset within the arrangement can only be replaced by a different asset in very limited circumstances specified in the law
  • super fund trustees cannot borrow to improve an asset (for example, real property)
  • the borrowing is permitted only over a single asset or a collection of identical assets that have the same market value
  • the recourse of the lender or of any other person against the superannuation fund trustee for default on the borrowing is limited to rights relating to the acquirable asset.

The rules are in section 67A and section 67B of the SISA.

Find out about:

    Last modified: 08 Feb 2016QC 20439