A limited recourse borrowing arrangement is where a superannuation fund borrows to purchase a single investment (asset), such as a property or a parcel of identical shares.
The Superannuation Fund is required to set up a holding trust which will have legal ownership of the asset that is held on trust for the fund. The SMSF trustees receive the beneficial interest in the purchased asset and have the right to acquire the legal ownership of the asset after making one or more payments.
If the SMSF defaults on the loan, then the lender’s rights are limited to the asset held in the holding trust only. This means there is no recourse to the other assets held in the SMSF.
Disclaimer: The information contained in this document is provided for educational purposes only, is general in nature and is prepared without taking into account particular objective, financial circumstances, legal and tax issues and needs. The information provided in this article is not a substitute for legal, tax and financial product advice. Before making any decision based on this information, you should assess its relevance to your individual circumstances. While SMSF Association believes that the information provided in this article is accurate, no warranty is given as to its accuracy and persons who rely on this information do so at their own risk. The information provided in this bulletin is not considered financial product advice for the purposes of the Corporations Act 2001.