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05 October 2021

It Depends – So my SMSF has paid out my borrowing under an LRBA, what do I have to do?

In this edition of ‘It depends’, partner Scott Hay-Bartlem talks about the next steps to take in your LRBAs once you've paid out your SMSF borrowings.

In this edition of ‘It depends’, partner Scott Hay-Bartlem talks about the next steps to take in your LRBAs once you’ve paid out your SMSF borrowings.


Hello. Many SMSFs have borrowings or LRBAs. In this It Depends, we look at what you do when you’ve paid it out.

What is the first thing you have to do?

Ok, so, the first thing you need to do is talk to your bank and get that debt mortgage formally released. It’s something you will need to talk to the bank that did the original borrowing to give you the formal paperwork.

Do I have to collapse my bare trust?

When you’ve got a super fund borrowing, you’ve got a trustee that owns a property on behalf of the SMSF trustee. What that means is when you’ve paid out your bare trust, you can transfer the asset out of that bare trust trustee down to the SMSF. Now, the law says you don’t have to transfer it down. And sometimes we don’t.  But you will have to if you’re going to renovate or develop, change the use or any of those sorts of things you can’t do while you’ve got an LRBA and a borrowing there in your SMSF.

How do I collapse my bare trust?

So, collapsing the bare trust really involves that transfer where the bare trust trustee transfers the property down to the SMSF trustee. That would involve a lot of titles, office documents. You will also need to check the rules in the bare trust deed. So, it’s another read the deed, read the deed, read the deed issue.

Are there consequences of collapsing my bare trust?

Well, that’s an it depends. The duty rules are different in every state. Pretty much every state now has an exemption for that transfer from the bare trust down to the SMSF. But you need to make sure you can tick off all the boxes and comply with the rules. Because there’s CGT and GST look through, they shouldn’t apply when you transfer the asset down, provide you got the whole thing right in the beginning, because to look through treatment applies where you’ve got a complying bare trust. LRBA borrowing arrangement.

If you’ve got any questions about LRBAs, superfund borrowing, collapsing them, 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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