Investing in Property with a SMSF Using an LRBA

June 12, 2024 June 24th, 2024

Continuing our discussion on borrowing within a SMSF, this post will dive deeper into how you can use a Limited Recourse Borrowing Arrangement (LRBA) to invest in property. We’ll cover the rules around acquiring assets, related parties, and the concept of a single acquirable asset.

Acquiring an Asset

An asset is broadly defined as any form of property, excluding money. The Australian Taxation Office (ATO) clarifies that property includes any type of right, interest, or thing of value legally capable of ownership. For an asset to be ‘acquirable’ under an LRBA, it must not be money, and its acquisition must not be prohibited under superannuation laws.

Related Party Transactions

The term ‘related party’ is crucial in SMSF investment. It includes relatives of a member, business partners, spouses, children of business partners, and any companies or trusts controlled by these people. Despite these restrictions, LRBAs can still be used to:

  • Acquire certain assets from related parties (e.g., listed shares, managed funds, business real property).
  • Lease assets to related parties within the 5% in-house asset limit.
  • Own assets through related entities like companies or unit trusts.

Owning Property with Related Parties

An SMSF can use an LRBA to own property with a related party as tenants in common, provided the property is not leased between the trustee and a related party. For business real property, this leasing restriction does not apply due to exemptions in the in-house asset rules.

Rules for Borrowing and Acquiring Assets

Borrowing must be arranged at the time of purchasing the asset, and the borrowed funds must be used to acquire a new or replacement asset. Existing SMSF assets cannot be put into an LRBA to avoid contravening superannuation laws that prohibit charges over existing fund assets. The sale contract must be in the custodian’s name, and the deposit and repayments must come from the SMSF bank account.

You can see this demonstrated in the graphic below.

smsf bare trust

Single Acquirable Asset Test

The asset purchased under an LRBA must meet the ‘single acquirable asset’ test. This can include identical assets with the same market value, such as shares in the same company. Real property under an LRBA must generally be a single property on one title, with some exceptions outlined by the ATO.

Having the correct structure in place

Under an LRBA, there is a requirement that the asset is held on trust so the trustee of the SMSF acquires a beneficial interest in the asset while the trustee of the holding trust acquires legal title to the asset.

The holding trust is a special trust established specifically for the purpose of the gearing arrangement. Although the SIS Act does not specify who can be the trustee of the holding trust, to ensure that a trust exists, the trustee (i.e. the custodian) cannot be the same as the trustee(s) of the SMSF.  It is also the ATO’s view that an existing family or unit trust should not be used as the holding trust.

There is also no need for a separate trustee where there are multiple assets that need to be purchased as single acquirable assets under separate borrowing arrangements.

Limited Liability

The LRBA provisions specifically require that the loan be limited recourse11. That is, where an SMSF defaults on the loan, the rights of the lender against the SMSF trustee are limited to the underlying asset subject to the borrowing – not any other asset owned by the SMSF.

Permitted use of borrowings

Under the LRBA provisions, a trustee is permitted to use borrowings to acquire a single acquirable asset as well as to pay for borrowing and transaction costs. The ATO has confirmed that this also includes the capitalisation of interest if the interest relates to the borrowing for the purchase of the single acquirable asset23.

A trustee is also permitted to use borrowings to fund any repairs and maintenance to the asset acquired with the borrowings. However, the provisions specifically prohibit the borrowings from being used to improve the asset.

What can be done with the asset?

As mentioned earlier, money borrowed under an LRBA may be used not only to acquire a single acquirable asset but also to carry out repairs and maintenance to that asset, whether necessary at the time of its acquisition or at a later time. Essentially, there is no need to distinguish between ‘maintaining’ and ‘repairing’, as both are allowed to be funded from borrowed money under section 67A of the SIS Act .

A trustee is also permitted to use borrowings to fund any repairs and maintenance to the asset acquired with the borrowings. However, the provisions specifically prohibit the borrowings from being used to improve the asset.

A repair would not involve anything that replaced the asset entirely or that changed the character of the asset. However, no amount borrowed under a LRBA can be applied to improve the single acquirable asset. Any improvements must be completed with other existing fund assets or contributions made to the fund

Even where money already held by the SMSF is used to improve the asset, care needs to be taken, to ensure that the asset doesn’t become a new or replacement asset.

Winding up the LRBA

Where the asset is sold, the sale proceeds will be used to discharge the loan and any remainder will be paid to the SMSF. All borrowed monies under the LRBA must be repaid. The loan cannot be retained and used to acquire another asset.

When the loan is fully repaid, the SMSF has the right to obtain legal ownership of the asset from the custodian of the holding trust.


Understanding the nuances of LRBAs can open up significant investment opportunities within an SMSF, particularly for property acquisition. However, it’s essential to navigate these rules carefully to ensure compliance and optimise the benefits of your retirement savings. 

Ready to explore property investment through your SMSF? Reach out to Greg, who heads up our financial planning team, for personalised advice and guidance on structuring an LRBA to suit your investment goals. We love helping you achieve your financial goals.


Source: Go-To Guide, Limited Recourse Borrowing Arrangement, SMSF Association Technical Team, July 2022


MBC Wealth is an authorised representative of Count Financial Limited ABN 19 001 974 625 holder of Australian financial services licence number 227232 (“Count”). Count is owned by Count Limited ABN 111 26 990 832 of GPO Box 1453, Sydney NSW 2001. Count Limited is listed on the Australian Stock Exchange. 
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