If your fund has entered into a loan agreement or is considering entering into a loan agreement where it has not borrowed the money directly, we strongly recommend that you seek advice from an SMSF professional or contact us for SMSF-specific advice. As of September 24, 2007, super funds could invest in certain LRBAs where money must be borrowed to acquire an eligible asset. Such agreements must meet the requirements of former paragraph 67(4A) of HIFIS. You may have heard of people buying real estate with their super. The super fund may need to borrow money to buy the property. Granting such a right in these circumstances does not violate the existing legal prohibition on charging fees on a fund asset, provided that the agreement meets all the conditions of the Super Act. Keep up to date with the never-ending pension changes with the following Thomson Reuters resources: The Essential SMSF Guide and Australian Superannuation Handbook. Available as a book, e-book and online. Trustees should always consider the quality of the investment they make and the ability of their fund to meet future obligations under the agreement. A trustee of an SMSF can only enter into such an agreement if it is compatible with the fund`s investment strategy. A loan agreement is an agreement between a lender and a borrower. This loan agreement is a formal way to determine the terms of the loan.

LRBA are usually long-term investments. Ask yourself if your SMSF will be able to maintain loan repayment and fees during this period. Will your SMSF have enough money to pay for other expenses in the fund, such as accountant and accountant fees? Also think about what would happen if one of the members left the fund or retired and wanted to withdraw their money or start a retirement? The ATO doesn`t give much clue about the type of loans SMSF trustees can make. However, the terms of the loan must be reasonable, which means that its terms must be standard terms for the type of loan. If in doubt, seek legal advice. The law does not prohibit the lender from being a related party. However, SMSFs still have to meet other legal requirements. For example, the SMSF must meet the single purpose test and comply with existing investment restrictions, such as those applicable to internal assets, and prohibitions on acquiring certain assets of a fund-related party. All agreements concluded under the limited-recourse credit agreement must comply with sections 67A, 67B and 71(8) of the Superannuation Industry (Supervision) Act 1993 (SIS Act). It is important that you seek legal and financial advice before entering into a credit agreement with limited recourse. We assume no responsibility and are not responsible for the fact that the proposed agreements comply with the relevant provisions. Example 1: Dividend income to reduce the capital of the loan The terms of a single LRBA may allow multiple withdrawals by the investor.

Each claim must be reviewed to determine whether the loan meets the requirements of the super law applicable to the respective agreement. It is important to set the right conditions for the loan, especially if related parties are involved. For example, this means that an FSMS trustee or investment manager cannot allow a related lender to charge the fund more than one arm`s length interest rate under the agreement. On the basis that he is not a party (family member) associated with you, his fund can make a loan. Any additional amount drawn under the agreement to pay interest on the amount of the outstanding loan or to pay other fees and costs related to the loan is considered money used for the acquisition of the asset. For properties held by an AML Holding Trust, an SMSF trustee may be able to make improvements to the property`s capital assets under the agreement without violating the Super Act, depending on when the agreements were finalized. .

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