Superannuation Borrowings in an SMSF

There has been much talk in the press recently about the ability of Self Managed Superannuation Funds to borrow. You would be excused from thinking that radical changes had been made to the types of property super funds are now permitted to invest in. That is not the case. The ability of a super fund to borrow creates investment opportunities not otherwise open to the fund. The type of assets that funds can and cannot invest in has not changed.

The changes made some years ago to allow SMSFs to borrow was a positive development. In particular, it now enables those funds to make real estate investments that previously they could not have made.

Whilst a SMSF 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. This creates a particular opportunity for people in business to acquire their business premises in their super fund. They much prefer to pay rent to their own fund, rather than to a third party investor.

Many business people find this a very attractive retirement strategy. They now enjoy the opportunity of selling their business on retirement and leasing the business premises through their super fund to the new owners of the business.

There are very rigid constraints placed on borrowings by SMSFs. 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 structured and 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: 1 July 2018


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.