Borrowing for Self Managed Super Funds
Although Self Managed Superannuation Funds (SMSFs) are normally not permitted to borrow, there are some important exceptions to this rule. One such exception, which has received plenty of attention in recent times, is an “SMSF limited recourse borrowing arrangement”, which gets its name because the rights of the lender against the SMSF trustee are limited if the SMSF defaults on the loan.
When used in the right circumstances, this strategy can assist members to grow their retirement savings, however there are many risks and issues that should be considered before embarking on this strategy.
For example, careful planning is needed to ensure superannuation contributions and the fund’s investment income is sufficient to meet the loan repayments and other existing and prospective liabilities of the SMSF as they fall due, as well as additional costs.
SMSF limited recourse borrowing arrangements that do not comply with the law can cause considerable problems for SMSFs and some trustees may not be aware of the serious consequences that follow. Some of these arrangements, if structured incorrectly, cannot simply be restructured or rectified, and can result in the SMSF suffering significant losses.
Learn more about SMSF limited recourse borrowing arrangements and the benefits and risks specific to your circumstances. Contact us to schedule a free, no obligation consultation with one of our experienced advisers before making any changes to your financial situation.