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18 July 2022

It Depends – Can my SMSF use a limited recourse borrowing trust?

In this week’s edition of ‘It depends’, senior associate Keeghan Silcock looks at SMSFs and the use of limited recourse borrowing trusts.

In this week’s edition of ‘It depends’, senior associate Keeghan Silcock talks about limited recourse borrowing trusts and whether your SMSF can use one. Hear more from Keeghan in the upcoming webinar with Clinton Jackson and Steven Jell on 4 August. Register now.


Hi. Welcome to another edition of It Depends. Today I’ll be talking about whether your SMSF can use a limited recourse borrowing trust.

What is a limited recourse borrowing trust?

So, a limited recourse. Borrowing trust is a special type of trust. It’s established specifically for the purpose of allowing yourself-managed super fund to borrow money. It’s also commonly known as a bare trust. To permit your SMSF to borrow using such a bare trust, it is important that it’s established correctly from the outset. This includes providing the SMSF the beneficial interest in the asset that’s being acquired by the bare trust using borrowed money. It also means allowing the SMSF the right to acquire the asset from the bare trust after one or more payments have been made. We commonly see that inappropriate provisions are included in the terms for bare trust. Another common mistake is that an SMSF may sign a contract to acquire an asset before the bare trust has been established correctly. This can cause duty issues in certain jurisdictions.

Can my SMSF use a limited recourse borrowing trust?

It depends. Whether your SMSF can use a limited recourse borrowing trust depends on the asset that your SMSF is looking to acquire using borrowed money. A limited recourse borrowing trust can only be used to acquire one single asset. So, if your SMSF is wanting to acquire multiple different assets, unless a certain exemption applies, then you’ll need to establish different bare trusts for each of those different assets. There are also restrictions on the changes or improvements that can be made to an asset while it is owned by a bare trust. So, if the SMSF was wanting, for example, to construct a property or significantly renovate a property, then you could not use a bare trust in that circumstance.

If you have any questions about setting up a limited recourse borrowing trust, or you’d like advice about how to structure borrowing by an SMSF generally, please contact a member of our team.

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This publication is for information only and is not legal advice. You should obtain advice that is specific to your circumstances and not rely on this publication as legal advice. If there are any issues you would like us to advise you on arising from this publication, please let us know.

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Key contacts

Scott Hay-Bartlem
Clinton Jackson
Keeghan Silcock
Keeghan Silcock
Senior Associate

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