Can your SMSF borrow to invest? A simple guide for trustees
Dominic Beattie
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- SMSFs can only borrow in very limited circumstances, most commonly through a Limited Recourse Borrowing Arrangement (LRBA).
- If an SMSF defaults on an LRBA, the lender can only access the asset held in the holding trust, protecting the fund’s other assets.
- Borrowing within an SMSF comes with complexity and risk, including stricter compliance rules.
Changes to SMSF borrowing rules
On 23 June 2026, the federal government announced it would no longer allow self-managed superannuation funds (SMSFs) to borrow money to fund investments in residential property.
From the date the legislation becomes official, SMSFs will have 45 days to finalise contracts already in place. (At this stage, the deadline is expected to be in mid- to late-August.)
Sale contracts and limited recourse borrowing arrangements finalised during this period will not be affected by the new rules.
After the 45 day period, SMSFs can no longer purchase residential property via a loan, but will still be permitted to buy a residential property outright, without finance.
SMSFs with existing limited recourse borrowing arrangements (LBRAs) in place will be permitted to refinance loans under existing refinancing rules.
The new SMSF rules apply to residential property purchases only and will not affect SMSFs buying commercial or industrial properties.
This article will be updated when full details are known.
There are a number of strict rules and regulations when it comes to borrowing through an SMSF. A fund can only borrow for a few select reasons and, and when it does, it must use a specialised loan structure.
When can you borrow money through an SMSF?
There are a few scenarios in which an SMSF can borrow money under the Australian Taxation Office's (ATO's) rules. You can borrow money through an SMSF for:
- Buying a single asset or a collection of identical assets with the same market value
Such as shares purchased in one parcel. - Covering costs associated with buying said asset
For instance, stamp duty. - Maintaining or repairing the asset
But NOT improving the asset (renovating, for instance) - To meet benefit payments due to members or an outstanding superannuation surcharge liability
A fund can borrow up to 10% of its total asset value for a maximum period of 90 days to meet these needs. - To cover the settlement of security transactions
If an SMSF entered a transaction which, at the time, it didn't expect to need to borrow money, it might be able to borrow up to 10% of its net asset value for a maximum of seven days to meet settlement costs.
Also read: A guide to buying property through an SMSF
Savings.com.au's two cents
Borrowing to purchase property or shares can be a way to diversify your SMSF's investment portfolio and potentially amplify returns beyond what member contributions alone can achieve. But any borrowing strategy needs to align with the fund's documented investment strategy and risk tolerance.
Borrowing within an SMSF is typically more complex - and often more risky - than borrowing personally. Although an LRBA limits the lender's recourse to the asset held in the trust, the fund still needs substantial, reliable cashflow to meet loan repayments. SMSF loans also involve considerable regulatory requirements that trustees must navigate.
There are clear pros and cons to borrowing through an SMSF, and understanding both sides of the equation is essential. Missteps can lead to significant penalties or even jeopardise the fund's compliance status. If you're unsure whether an SMSF borrowing strategy suits your circumstances, consider seeking guidance from an independent SMSF adviser.
How does SMSF borrowing work?
An SMSF is generally unable to borrow money, but there are some exceptions - the most common being under Limited Recourse Borrowing Arrangements (LRBAs). LRBAs can allow SMSFs to borrow money to purchase an asset that's then held inside a holding trust. That way, if the SMSF defaults on the loan, only the asset held in the trust is available for repossession.
This safeguards any other assets held by the SMSF if the loan defaults, while any investment returns go to the SMSF.
LRBAs aren't exclusively offered by lenders. SMSFs can borrow via LRBA from 'related parties', but this must be done at 'arms-length' to avoid being taxed at a higher rate. Instalment warrants are another option - and we'll talk about that later.
Improperly borrowing money through an SMSF can result in a contravention of one or more super laws - and this can have consequences for both the fund and its trustees.
Clearly, it's a can of worms. The ATO warns that LRBAs (and SMSFs for that matter) aren't right for everyone. It urges trustees to look closely at a loan product before deciding. Some questions to ask include:
- Who will be the lender and what will happen if interest rates change?
- Can the loan be called in early?
- Can your loan be sold to another lender?
- Can its terms be altered?
- Given LRBAs are generally used for long-term investments, will the SMSF have enough money left over to pay other administrative expenses such as accountant and auditor fees?
Additionally, the ATO recommends SMSF trustees interrogate the asset being purchased under the LRBA. Aspects to consider include:
- Is the asset being offered of good quality?
- What's the value of the asset you're looking to buy? If you've been given a valuation, is it reasonable? Is there a way to check?
- Does the asset need to be insured and, if yes, will the SMSF have the money to pay insurance costs?
Just as any investment decision being made for your SMSF, an SMSF loan must be in line with your trust's investment strategy and be for the sole purpose of providing retirement benefits to SMSF members.
Looking to take control of your retirement? The table below features SMSF loans with some of the most competitive interest rates on the market.
| Lender | Home Loan | Interest Rate | Comparison Rate* | Monthly Repayment | Repayment type | Rate Type | Offset | Redraw | Ongoing Fees | Upfront Fees | Max LVR | Lump Sum Repayment | Extra Repayments | Split Loan Option | Tags | Features | Link | Compare | Promoted Product | Disclosure |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
6.89% p.a. | 6.91% p.a. | $3,290 | Principal & Interest | Variable | $0 | $230 | 60% |
| Promoted | Disclosure | ||||||||||
7.14% p.a. | 7.19% p.a. | $3,374 | Principal & Interest | Variable | $0 | $220 | 70% | Disclosure | ||||||||||||
7.24% p.a. | 7.26% p.a. | $3,407 | Principal & Interest | Variable | $0 | $230 | 80% | Disclosure |
Instalment warrants: SMSF borrowing for shares
SMSFs can also borrow money through an LRBA structure to invest in shares under certain conditions, and this can be done by using installment warrants. This means the SMSF makes an initial payment on a share and repays the rest over time. To meet the limited recourse borrowing requirements, internal structures must be put in place.
Borrowing via an SMSF to invest in shares presents another hurdle - shares need to be considered a 'single asset' or 'collection of assets with the same market value'. So, if you're buying shares in a variety of companies or shares in the same company but at different times, you'll need to take out a new LRBA each time.
When borrowing to invest in shares, it's important to consider the potential risks that could impair you from repaying your debt. Most notably, the prospect of a margin call.
SMSFs beware: Margin calls
If an SMSF buys shares with an LRBA and the value of those shares drops significantly, it may risk receiving a margin call from its lender. Margin calls are issued when the value of an asset used as security on a loan falls to a level deemed too risky to a lender.
A margin call can force a borrower to repay a portion of the loan so to shrink the risk the loan represents to the lender. Again, it's important to remember keeping up with LRBA repayments is the responsibility of your SMSF - not you - and all repayments must come from your SMSF.
Are LRBAs worth the risk?
From a risk perspective, LRBAs introduce leverage, concentration risk, and liquidity pressure, particularly in changing rate environments. From a compliance standpoint, they are unforgiving; the bare trust, lending terms, and sole purpose test must be correct from day one, and mistakes can be costly.
My approach is grounded in one principle: just because you can, doesn’t mean you should. LRBAs are highly effective for the right client, typically those with strong super balances, consistent contributions, and a clear investment horizon, but they must form part of a broader, well-advised strategy.
What happens if an SMSF defaults on a loan?
In a normal borrowing situation, if a person defaults on their loan, the lender might look to seize anything they can to recoup their losses. Purchasing assets through an LRBA means assets purchased using a loan are held in separate trusts within the SMSF. So, if the loan defaults, the lender has 'limited recourse' and can only access the asset acting as security. This protects any other assets held in the SMSF.
While defaulting on a loan is never ideal, knowing the retirement wealth you own outright is untouchable can provide peace of mind. It's also why SMSF loans are inherently riskier for a lender, and why they tend to charge higher interest rates on LRBAs.
Frequently Asked Questions
No, borrowing is only permitted for acquiring or improving an asset, not for renovations on property the fund already owns.
No, SMSF loans must be limited recourse, meaning only the SMSF asset itself can be used as security, not your personal home.
Yes, the deposit must come directly from the SMSF’s own balance, with the loan covering only the remaining purchase price.
No, residential property held by an SMSF cannot be leased to related parties, even if rent is charged at market rates.
