Borrowing Arrangements for your SMSF
Added on by Etairos AccountingCurrent trends show that more and more
Self Managed Super Funds are investing in property through the use of limited recourse borrowing
arrangements. Therefore it is of ever greater importance that this process is
completed in-line with Australian Tax Office requirements.
For trustees thinking of
undertaking a limited recourse borrowing arrangement please find a useful
checklist below
- Ensure your SMSF’s deed allows you to borrow, grant security and allow assets to be held by a bare trust.
- Amend your SMSF’s investment strategy to permit the acquisition of the asset (property or shares) and allow borrowing for that purpose.
- Who is the bare trust? Arrange for the bare trust deed to be prepared and the bare trustee company to be registered.
- Prepare a minute, for the bare trust, showing a resolution that the trustee will act as custodian of the asset for the SMSF trustee.
- Negotiate for the purchase of the asset in the name of the bare trustee.
- Complete loan agreements between the SMSF Trustee/s and the lender.
- Make sure it is clear that the loan agreement states ‘limited recourse borrowing loan’.
- Purchase the asset using only the SMSF’s money and the loan.
- Ensure that upon repayment of the loan the asset is transferred from the bare trust to the SMSF.
- When sourcing the finance for the purchase of the asset you can lend from either private sources (including members) or traditional lenders.
Originally published By ASIC registered SMSF Auditor, Heath Griffiths in SMSF Blog
