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Irina Hollander & Associates Pty Ltd Chartered Accounts

Limited Recourse Borrowing Arrangement – can we?

Since the borrowing restrictions have been lifted back in 2007 and further fine-tuned in 2010, SMSFs are able to borrow to acquire investments.

LRBA is the arrangement that enables an SMSF to acquire an investment using a borrowing.

There are two (2) types of LRBA that an investor should be aware of:

1) LRBA (bank borrowing)

and

2) LRBA (related party borrowing), the one the banks won’t tell you about.

Both types of LRBA have their moments and place. Depending on a number of variables specific to your circumstances you will end up choosing one over the other.

Based on my personal and my clients’ experience, LRBA (bank borrowing) is an expensive and time consuming option. A much more time efficient alternative is an LRBA (related party), where you or your related entity lends the funds to your SMSF on commercial terms to acquire an investment. The money lending in that case can happen as fast as one can physically do it, with or without a refinance of any existing mortgages.

Multiple lenders (bank & a related party, or multiple related parties) are also permitted, though you will find that any deviation from a “standard” model results in a numbing hike in legal fees to duly document the LRBA.

LRBA (related party) is my personal favourite, as personal tax minimisation together with a minimal impact on your current cash flow are possible.

There are a few points to be aware of, as SMSF lending is strictly regulated and subject to stringent SIS (“Superannuation Industry (Supervision)”) Act requirements. Certain things not done at the right time or order can result in a double stamp duty or the SMFS losing its compliance status with all the grievous tax consequences to follow.

When LRBA is carried out correctly, it turns your humble SMSF into a wealth building vehicle, giving an incredible boost to your future retirement lifestyle.

Please contact your trusted taxation advisor to assist you with a correct set up of your SMSF, explain everything you need to know free of legal, tax and accounting jargon and to correctly set up and guide you through the LRBA process.

For further information please contact Irina Hollander CA.

Disclaimer

The information provided above is of a general nature only and should not be relied upon as a substitute for specific professional advice.