This video explores whether a Self-Managed Super Fund (SMSF) can borrow to purchase assets and explains the concept of Limited Recourse Borrowing Arrangements (LRBAs).
Source: the ATO Youtube Channel
What is a Limited Recourse Borrowing Arrangement (LRBA)?
An LRBA is a specific type of loan that allows an SMSF to borrow money to acquire an asset while ensuring that the lender’s recourse (ability to recover losses) is limited to the asset itself. This means that if the SMSF defaults on the loan, the lender cannot seize other fund assets—only the asset purchased with the loan.
Key Topics Covered in the Video:
- Can an SMSF Borrow Money? – Explanation of the rules surrounding borrowing within an SMSF.
- How LRBAs Work – Structure, restrictions, and conditions required for compliance.
- Case Studies – Real-life examples illustrating how SMSFs use LRBAs to acquire assets.
- Legal & Tax Considerations – Important regulatory factors to keep in mind when setting up an LRBA.
- Risks & Benefits – Potential advantages and challenges of SMSF borrowing.
Why is SMSF Borrowing Important?
- Expands Investment Opportunities – Allows SMSFs to invest in larger assets, such as property, without needing the full capital upfront.
- Wealth Building – Leverage can accelerate portfolio growth when used wisely.
- Risk Management – LRBAs protect the SMSF’s other assets from lender claims in case of default.
Understanding these arrangements is crucial for SMSF trustees considering borrowing as part of their retirement investment strategy.
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