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For many Australians, super is one of the biggest investments, if not the biggest investment, they will ever have. That’s why most people keep their super money in professionally managed super funds.

However, some people want the hands-on control that comes with a self-managed super fund. Of course, with added control comes added responsibility and workload.

Self-managed super funds can be suitable for people with a lot of super and extensive skills in financial and legal matters. You must be prepared to research and track your super investments regularly if you want to manage it yourself. Super is your investment for your retirement, so don’t rush in.

Our subsidiary Finmark Private Wealth provides access to SMSF Specialists in regard to establishment, structuring, investment strategy formation and ongoing management. Whereas, your Mortgage specialist at The Finmark Group will ensure that any borrowing is appropriately structured and compliant.

How does a self-managed superfund work

You can set up your own private super fund and manage it yourself, but only under strict rules regulated by the Australian Taxation Office (ATO). They are sometimes called a ‘self-managed super fund’ (SMSF).

An SMSF can have one to four members.

To qualify as an SMSF, you must appoint either a group of individuals or a company to act as the trustee of your fund. The trustee structure you choose will influence how your fund is

administered and the cost of setting up and running your fund. So it’s important to choose the arrangement that best suits your needs and the needs of the other members of your fund.

Each member is required to be a trustee in an individual trustee structure, whereas all members must be directors of the company that has been set up to act as the corporate trustee. Further, all directors must be members of the fund.

No member of your SMSF can be an employee of another member of the fund, unless they are relatives.

Individual trustees or a Corporate trustee and the directors cannot be paid for their services

(except in limited circumstances).

Running your own fund is complex so think carefully before setting one up.

If you set up a self-managed super fund you must:

  • Carry out the role of trustee, which imposes important legal duties on you
  • Use the money only to provide retirement benefits
  • Set and follow an investment strategy that ensures the fund is likely to meet your retirement needs
  • Keep comprehensive records and arrange an annual audit by a qualified auditor

Think carefully about your decision, if you’re considering setting up a self-managed super fund you need to do your research and understand your obligations. Speak to a Finmark Private Wealth SMSF Specialist.

SMSF borrowing

The general rule is that your self-managed super fund can’t borrow money, although like all rules the ‘no borrowing’ rule has some exceptions.

SMSF trustees need to understand the difference between direct borrowing and indirect borrowing and the special rules that apply to each exception. Your fund can’t directly borrow money, except in two instances: if you need cash to pay a member’s benefit, or if you need cash urgently to settle a share transaction.

Your super fund can also indirectly borrow money. A SMSF can invest in managed funds that borrow money (geared managed funds), or even invest in instalment warrants, warrants, options or contracts for differences (CFDs).

Purchasing an asset using a limited recourse borrowing arrangement  (LRBA) is becoming increasingly popular with SMSF trustees seeking to gear an investment portfolio without breaking super’s ‘no borrowing’ rules.

SMSF trustees, need to consider whether borrowing to invest is an appropriate investment consideration taking into account the risk and return of the underlying investment and the risk profile of the fund members, the cash flow considerations for the SMSF and whether the super fund is sufficiently diversified to meet its long-term investment objectives.

Due to the complex nature of Self-Managed Super Funds, the relevant legislation and the need to ensure that any SMSF borrowings are structured appropriately it is advisable for SMSF Trustees to seek professional advice from a qualified SMSF Specialist.

Finmark Private Wealth provides access to SMSF Specialists in regard to establishment, structuring, investment strategy formation and ongoing management. Whereas, your Mortgage specialist at The Finmark Group will ensure that any LRBA is appropriately structured and compliant.

Limited Recourse Borrowing Arrangement (LRBA)

Amendments to superannuation legislation in September 2007 provided trustees of SMSFs with the opportunity to borrow for the purpose of acquiring a single asset. A LRBA means that any recourse the lender has under the borrowing arrangement is limited to the single asset purchased using the LRBA.

Trustees of SMSFs are now in a position to buy a commercial or residential property through their SMSF.

Providing the SMSF has a deposit that meets the lenders loan valuation ration (LVR) requirements the lender will provide the balance of the purchase price. Banks may require a minimal deposit but trustees should be aware that negative gearing in a super fund is not tax effective due to the reduced tax rate applicable to super funds.

Legislation requires that the loan must be a Limited Recourse Borrowing Arrangement (LRBA). This facility allows the lender to hold the property as security however any existing or other assets held by the SMSF cannot be used for additional security. Subsequently the lender may insist that the members provide personal guarantees.

Trustees can either borrow from a financial institution e.g. a bank or from a related party e.g. the members or an entity controlled by the members.

When a SMSF uses an LRBA to purchase an asset, then the arrangement must satisfy the following conditions:

  • The SMSF uses the borrowed monies to purchase a single asset, or a collection of identical assets that the same market value
  • The SMSF can’t use the LRBA monies to ‘improve’ a purchased asset
  • The SMSF trustees receive the beneficial interest in the purchased asset but the legal ownership of the asset is held on trust (the holding trust)
  • The SMSF trustees have the right to acquire the legal ownership of the asset by making one or more payments
  • Any recourse that the lender has under the LRBA against the SMSF trustees is limited to the single fund asset (including rights to income). Lenders can legally demand an individual to provide a personal guarantee against personal assets
  • Replacing the asset subject to the LRBA is possible only in very specific circumstances.

Limited Recourse Borrowing Structure


  • Regulations require that the property acquired with borrowed monies must be held by a bare trust with the SMSF being the beneficiary of the trust.
  • The bare trust is merely the registered holder of the property until the loan is repaid. The SMSF will receive rental income from the lessee and will pay interest to the lender.
  • If and when the loan is repaid the legal ownership of the investment property will revert to the trustee of the SMSF.
  • The trustee of the SMSF cannot be identical (the same) as the trustee of the bare trust, this may in some instances require a corporate trustee for both entities, again dependent on the lenders requirements.


  • When trustees enter into a contract of sale to purchase a property they should be aware that the purchaser must be the trustee of the bare trust as this entity will be the registered owner upon completion of the property settlement.


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