Super Fund Borrowing Rules

Complying self-managed super funds can only borrow in very limited and controlled circumstances.

They include:

  1. borrowing not exceeding 10% of the total fund assets for a maximum of 90 days to meet benefit payments due to members or an outstanding surcharge liability
  2. borrowing not exceeding 10% of total fund assets for a maximum of 7 days to cover the settlement of security transactions, only if, at the time the transaction was entered into, it was likely that the borrowing would not be needed
  3. limited borrowing through the use of instalment warrants or limited recourse borrowing arrangements

Budget 2017-18 measure: LRBA repayments included in TBC

From 1 July 2018, certain limited recourse borrowing arrangements (LRBA) are included in a member’s total superannuation balance and transfer balance cap.

The new rules are to have application from 1 July 2018. See Treasury Laws Amendment (2018 Superannuation Measures No. 1) Bill 2018

Update – 8 Sept 2015 Instalment Warrants

The government has changed the law, to take effect from the  2007-08 year,  to enable a “look-through” treatment of instalment warrants. This removes the potentially adverse tax consequences of uncertainty which has arisen regarding trustee ownership of instalment warrant assets, to enable a “look-through” to the beneficial ownership.

SMSFs Borrowing for investment

Through changes in the law, opportunities arose for SMSFs to use borrowings for investment purposes. Real property has attracted a lot of attention as an investment in this context, but the rules can essentially apply to any investment which is consistent with the over-arching sole purpose test.

Rule changes impacting this area have been:

  • from 24 September 2007 to 6 July 2010 Section 67(4A) of the SIS Act 1993 provided for investments in certain instalment warrants
  • since 7 July 2010 section 67A and section 67B of the SIS Act 1993 have allowed super funds to undertake limited recourse borrowing arrangements (“LRBA”s)     

From 7 July 2010 – Limited Recourse Borrowing Arrangements (“LRBA”)

An LRBA is a borrowing arrangement which is structured so that the super fund’s assets are shielded from the loan risk. This is achieved by setting aside the investment asset and related borrowings into a separate trust.

The super fund owns an unencumbered interest in the trust entity, but if the loan has to be enforced it essentially only only involves the trust vehicle, and the super fund is kept safe.

The super fund in this arrangement services the loan from its cash flow. But if anything goes wrong, the lender only has recourse to the investment asset (perhaps with collateral guarantees if they are provided), but does not have access to the assets of the super fund itself.

There are strict rules over the way in which this can be done. Guidance from the Tax Office in this regard is Tax Ruling SMSFR 2012/1 Self Managed Superannuation Funds: limited recourse borrowing arrangements – application of key concepts which contains a review of ‘key concepts’ and a number of examples.

The key concepts explained are:

  • what is an ‘acquirable asset’ and a ‘single acquirable asset’;
  •  ‘maintaining’ or ‘repairing’ the acquirable asset as distinguished from ‘improving’ it; and
  • when a single acquirable asset is changed to such an extent that it is a different (replacement) asset.

Rules and restrictions include:

  • the borrowings must be used to acquire a single asset or a collection of identical assets
  • legal ownership of the asset must be separated from the super fund which retains a beneficial interest
  • the lender’s access is limited to the LRBA asset
  • replacement of the asset is narrowly restricted
  • the LRBA funds can be used for repairs and maintenance to the asset whether necessary at the time of its acquisition or later. Funds cannot be applied to non-trivial alterations or improvements.   

Considering an LRBA super strategy to buy property?

When executed badly, LRBAs can result in double or even triple stamp duty, confusion over ownership, and SMSF audit problems.

References and further information

In-house asset rules

The in-house asset rules (restrictions) contain an exception for an SMSF’s investment in a LRBA trust entity provided conditions are met.

See Tax Office: LRBAs and In-House Asset Rules and SPR 2014/1 – Explanatory Statement 4 April 2014LRBA-property

Zero Interest Related Party Loans

Potentially, uncapped lending from a related party at no interest to an LRBA arrangement to buy an investment for a super fund has the capacity to circumvent the contributions caps.

The Tax Office has indicated a view that a zero rate and the surrounding circumstances of the loan together may indicate a non-arms-length arrangement overall.

In practice this means that any borrowing arrangement by a super fund which is on more favorable terms than would be offered by a bank at arm’s length could be called into question.

For further information on the ATO’s (December 2015) published guidance in this regard, see

  • ATO ID 2015/27 – Non-commercial limited recourse borrowing arrangement to acquire listed shares
  • ATO ID 2015/28 – Non-commercial limited recourse borrowing arrangement to acquire real property

Getting it sorted by 30 June 2016:

On release of ATO IDs 2015/27 and 28, the Tax Office indicated it “may allocate compliance resources to review” LRBAs from the 2015–16 year onwards, and will not review 2014–15 or earlier years solely on the basis that the fund has entered into an LRBA.

The ATO has since granted an extension of time to 31 January 2017 for members of SMSFs who have lent to their SMSF to get the loans onto a commercial footing.

Safe Harbour SMSF Borrowing, and further info

PCG 2016/5 issued by the ATO sets out “safe-harbour” conditions for the structure of LRBA borrowings, which if followed will avoid the application of the non arms-length penalty tax rates.

Non-arm’s length income of a super fund income is taxed at a penalty rate based on the top personal marginal tax rate, which removes the advantage of an arrangement might otherwise be expected to be taxed at the concessional super fund rate of 15%.

The guiding principle is that for the super fund concessions to be available, arrangements generally need to be commercially realistic and on an arms-length basis.

The necessary conditions include the application of commercial borrowing interest rates which are set out in the table below.

 LRBA Safe Harbour
Variable Interest Rates (PCG 2016/5)
Real PropertyShares and Units
2016-17 5.65%7.65%
For fixed interest rates trustees may choose to fix the rate at the commencement of the arrangement for a specified period, up to a maximum of 5 years (real property) or 3 years for (shares and units). Source: ATO


For commentary on ‘zero-interest’ loans – see

See also


This page was last modified 2019-07-10