Self Managed Super Funds - Borrowing

August 14, 2014
Carol Pizzey


Borrowing or gearing your superannuation fund into property needs to be done under very strict borrowing conditions called a “limited recourse borrowing* arrangement”.

A limited recourse borrowing arrangement can only be used to purchase a single asset, ie residential or commercial property.  


Geared SMSF property risks include:

  • Higher Costs - SMSF loans are sometimes more costly than other investment property loans.  Higher costs should be factored into your investment decision.
  • Cash flow - Loan repayments are taken directly from your SMSF which means your fund must always have sufficient money available.  Any shortfall will require you to make extra contributions to your SMSF to ensure that loan repayments are covered.
  • Hard to cancel - If your SMSF property loan documentation and contract is not set up correctly, unwinding the fund may not be allowed and you may be required to sell the property.  This could potentially cause substantial loss to your SMSF.
  • Tax losses - Tax losses from the property cannot be offset against your taxable income outside the fund.
  • Cannot borrow to improve the property - Borrowed funds can be used to maintain the property but cannot be used for any property improvements.


SMSF borrowing is not right for everyone.  This type of investment needs careful consideration and good advice – the rules are very complex and mistakes can often be extremely costly.  However, with the proper guidance, SMSF borrowing can be a great investment option for you.   ASIC also recommend caution when seeking finance.  

Mortgage Choice Camberwell have experience in borrowing on behalf of a SMSF.  I would be happy to discuss your individual circumstances to provide you with expert advice for lending within an SMSF.  Call me, Michael Wren on 9813 3522 or email for further information.

* Limited Recourse Borrowing is an arrangement which requires an SMSF trustee to take out a loan from a third party lender. The trustee then uses those funds to purchase a single asset (or collection of identical assets that have the same market value) to be held in a separate trust.

Any investment returns earned from the asset go to the SMSF trustee.

If the loan defaults, the lender's rights are limited to the asset held in the separate trust. This means there is no recourse to the other assets held in the SMSF.

Posted in: Property investment

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