5 Things About Limited Recourse Borrowing Arrangements (LRBA)

There has been a lot of news recently and the ATO has released some information about LBRA’s and how it is dealt with through your SMSF.

Generally you cannot borrow within an SMSF but an LRBA is an exception to the rule.

We will discuss what an LRBA is and some frequently asked questions about an LRBA.

Here is the ruling for LRBAs from the Superannuation Industry Supervision Act (SISA)67, 67A and 67B, explained by the Self-Managed Superannuation Funds Ruling SMSFR 2009/2 . I know that sounds like a lot of jargon but there it is so you can refer to it.


LRBA Pathway

First let’s discuss what an LRBA is and what it means for the rest of your SMSF holdings.

An LRBA is a loan taken out by an SMSF trustee to purchase an “acquirable” or “single asset”. This asset should be held in a (separate trust (find this in the “In House Asset Rule” Bottom-left of the ATO link)). “Limited” refers to lender’s rights, where should the loan default, the lender can only go after the asset held in the trust you have set up for that individual asset, not the rest of your SMSF. Other assets held in the SMSF cannot be considered collateral against the loan.


There are many considerations for your personal SMSF investment strategy. Firstly, is it consistent with your strategy? This is an ATO requirement. An LRBA is generally a long-term investment. Ask questions about the loan and the asset you want to purchase and what each will entail.  The ATO suggests that you seek advice from a qualified, licensed professional to help you decide if limited recourse borrowing is right for your SMSF.


LRBA Aquirable Assets

What is an acquirable asset?

Anything other than money that a SMSF Trustee is legally able to purchase under the SISA or any other law is an acquirable asset. The borrowing is permitted only over a single asset or a collection of identical assets that have the same market value. Visit the ATO Q&A “Requirements under the Super Law…” for a full explanation.



Property Alterations and Funding Improvement Costs

Many ask “Can you renovate a property with LRBA funds?”

To qualify for an LRBA, usually the bank asks you to seek a certificate from a financial adviser. This is a great time to ask the financial advisor and the bank whether or not you can include funds int
o the LRBA to repair or do necessary maintenance to a property. It is best to qualify what a repair is as opposed to an improvement.   You have the option of using personal funds to make repairs.

Assets acquired under a limited recourse borrowing arrangement cannot generally be replaced with a different asset. In a practical sense this means, during the life of the loan, alterations to a property acquired under an LRBA cannot be made if it fundamentally changes the character of the asset, which is generally considered an “improvement”. For example, property alterations that have the effect of changing the character of a property from a residential to a commercial property during the life of the loan are not permitted. However, alterations or improvements to the property that have the effect of improving the functional efficiency of the asset, but do not change the character of the asset, are permitted provided they are not funded by borrowed funds.

Another Common Question:

Can an SMSF trustee borrow under an LRBA to build a house on vacant land owned by the fund? (ATO Q&A Located under “The Asset Being Aquired…”)

No. An existing SMSF asset cannot be put into an LRBA. The giving of a charge over an existing asset of the fund (the vacant land), as would generally occur under such arrangements, would contravene the super law.



Craig Morrissey of SMSF Audits explains “the most common problem that we see with SMSFs that enter into limited recourse borrowing arrangements is making sure that superannuation contributions and the fund’s investment income is sufficient to meet the loan repayments and other existing and prospective liabilities of the SMSF as they fall due.”

“The other main issue is SMSFs that don’t comply with the laws around the types of assets that can be purchased and the structures that are acceptable.”

Craig Morrissey of SMSF Audits explains these aspects and more in his LRBA fact sheet.


For further answers to questions you can refer to  Q and A from the ATO

You can also contact your  professional SMSF specialist or find a specialist in the listings on SMSFCommunity.com.au .

If you are unsure about any aspect you can apply to the ATO for Self-Managed Super Fund Specific Advice






This article was created as general information only and not to be considered complete or advice.

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