Can I borrow money from my self-managed super fund?
Self-managed super fund bank loan: Self -Managed Super Funds (SMSF) are allowed to borrow to invest in direct property, managed funds or shares as long as a Limited Recourse Borrowing Arrangement is used for the transaction.
In fact, in Australia, borrowers have access to SMSF home loans to purchase investment properties via a self-managed super fund (SMSF).
This loan is a mortgage controlled by the super fund members, which is used to buy an investment property.
The rental income and capital growth generated by the investment property form part of your super fund’s retirement savings.
You can borrow money through your super fund to cover an investment purchase, but you need a particular SMSF loan to do it.
And it’s getting increasingly hard to find a lender who offers these products.
You can also read this article >>> Investing with SMSFs
Which banks have loans for SMSF trusts?
Most lenders have pulled out of the SMSF home loan market due to the potential risks associated with these products for lenders.
AMP, Macquarie Bank, St. George, and the Big Four banks all previously offered these loans and have all exited the SMSF loan market.
The lenders that still offer these products include:
Reduce Home Loans
La Trobe Financial
Switzer Home Loans
Do banks look at the beneficiaries?
For new trusts, some lenders will look at the current income of the trust beneficiaries, the previous super contributions they have been making and their unique proposed super contributions.
In addition they can asset their loan based on their proposed super contributions if they are within the maximum
amounts allowed by the ATO and can afford them without hardship.
Lenders know the maximum amounts that you are allowed to make as concessional and non-concessional contributions. These limits can change from year to year.
In reality they will decline loan applications that require contributions above these amounts to prove your SMSF‘s ability to repay the debt.
You can Also read this article >>>>> SMSF auditor obligations
Limited Recourse Borrowing Arrangement (LRBA)
An LRBA is a financial arrangement that enables an SMSF to purchase property or shares with borrowed money.
It is limited recourse because if the trustee defaults on the loan, the lender’s recourse is generally limited to the asset acquired,
which protects the value of the other fund assets.
Trustees can borrow from related parties of the fund, including its members or lending institutions.
When borrowing from a related party, must follow specific rules to ensure that the loan is commercially viable.
Since an SMSF cannot own an asset directly geared, it must hold the investment on trust until the loan is repaid.
A bare trust is established to keep the asset as custodian, but the SMSF has an entire beneficial interest in that property or shares, and as a result, will receive all rent paid by the tenants or dividends generated by the claims.
Your SMSF trustee pays interest on the loan and fees to the lender.
In the case of a property, it also pays for repairs, maintenance and property management expenses.
These costs may be deductible to the fund.
One of the main attractions of borrowing to purchase shares or property within an SMSF is taxable capital gains.
For example, a capital gain on a property held for longer than 12 months is taxed at only 10%, and in the retirement pension phase, any capital gains are tax-free.
Who should use LRBAs?
LRBAs will suit those members of SMSFs who meet one or both of these criteria:
• need to build their retirement savings faster.
• would like to hold a fundamental property inside the low tax super environment (e.g. their business premises).
How do I apply for an SMSF loan?
Few mortgage brokers or bank managers understand Self-Managed Super Funds (SMSF), and even fewer are experts in lending to them.
By using our services, you can get the best advice for your SMSF trust loan.
If you want to know more about SMSF, read this article>>>Self-anaged super fund