Superannuation Borrowings

There has been much talk in the press recently about the ability of superannuation funds to now borrow. You would be excused from thinking that radical changes have been made to the types of property super funds are now permitted to invest in. That is not the case, whilst the ability of super funds to now borrow creates opportunities for individual super funds that might not have previously existed, the type of assets that funds can and cannot invest in has not changed.

In our view, the ability of super funds to borrow is a positive development. In particular, it now enables super funds to make real estate investments that previously they might have been unable to make. Whilst super funds cannot invest in residential property, if a member or an associate of a member of the fund is to use it, they can now invest in commercial real estate including farmland. They can do so even if that commercial real estate or farmland is occupied or used by a member of the fund. There is a particular opportunity for people in business to acquire their business premises in their super fund. Many business people find this a very attractive retirement strategy, as it gives them the retirement opportunity of selling their business, but leasing the business premises through their super fund to the new owners of the business and enjoying the passive rental income as a means of funding their retirement.

There are very rigid constraints placed on super fund borrowings. The tax office, which now has responsibility for administering self managed super funds, has flagged this area for ongoing review. It is therefore important that any super fund borrowing be very carefully documented to ensure the requirements are satisfied. This documentation doesn’t just extend to the financier’s loan documents, but also extends to the fund’s internal documentation.

At Nevetts we are able to assist with advising on and documenting superannuation fund borrowings, and regularly assist clients, both when they are borrowing from external financial institutions, and also when they are borrowing from related parties.

Published: 4 April 2014


The information in this article is general in nature and is not to be relied upon as legal advice. As always, we recommend you seek thorough legal advice to consider your own circumstances and determine whether the information contained in this article is applicable to you.  This article is current as at the date of publishing but will not be updated as circumstances change.