Saturday, 20 April 2013

SMSFs – borrowing

One of the hottest trends in the land of SMSF spruiking at the moment seems to purchase property using a limited recourse borrowing arrangement (LRBA).  The Millionaire on Heels is a bit of a cynic when it comes to “hot trends,” as they often seem to make more money for the spruikers than the spruikees. 

(My spell check is going crazy at the moment – I didn’t think that spruikee was a word, but I’m sure spruiker and spruiking are!)

So I thought it would be interesting to explore what SMSFs can borrow for and how to do it.

A search of the ATO website and some googling reveals that, low and behold, despite all the publicity around LRBA’s, as a general rule, SMSFs are not actually allowed to borrow money.  However, there are a couple of exceptions.

Basically, different rules apply to direct and indirect borrowing:
  • Direct borrowing is when you borrow directly from a bank or other lending institution
  • Indirect borrowing is when you invest in an asset that someone else has already geared or take out an option to purchase an asset at a future date