Self-Managed Super Funds (SMSFs) offer unparalleled control over your retirement savings, and for many, that control extends to investing in assets like property through borrowing. This strategy, known as a Limited Recourse Borrowing Arrangement (LRBA), is both powerful and complex.
In 2025, the SMSF lending landscape continues to evolve, shaped by tighter lender policies and heightened regulatory scrutiny from the Australian Taxation Office (ATO). Understanding the latest rules is non-negotiable for compliant and successful investing.
The Latest Law: Limited Recourse Borrowing Arrangements (LRBAs)
The ability for an SMSF to borrow is a rare exception to the general superannuation rules and is governed by strict requirements under the Superannuation Industry (Supervision) Act 1993 (SIS Act).
- The Single Acquirable Asset Rule
An LRBA must be used to acquire a single, specific asset (or a collection of identical assets with the same market value). This asset is typically commercial or residential property or a parcel of shares.
- The Bare Trust Requirement
The purchased asset must be held on trust by a separate entity a Bare Trust until the loan is fully repaid. This ensures the lender’s recourse is limited only to that asset, protecting other SMSF assets in case of default.
- Heightened ATO Scrutiny
The ATO is focusing on:
- Related Party Loans (PCG 2016/5): Terms must be strictly arm’s length interest rate, loan term, and security comparable to commercial lenders. Non-compliance can trigger Non-Arm’s Length Income (NALI) tax at 45%.
- Trustee Education: Strong push for mandatory education for trustees engaging in LRBAs.
- Lender Policy Changes
Specialist and non-bank lenders dominate after major bank withdrawals. Key 2025 trends:
| Feature | Pre-2025 | 2025 Policy |
| Max LVR (Residential) | Up to 80% | 75% or less |
| Min. SMSF Balance | ~$200k | $250k–$300k+ |
| Liquidity Requirement | Varies | $100k–$150k reserve |
| Acceptable Property | Broad | Excludes high-density apartments, some regional areas |
Case Study: Commercial Property & Related Party Lending
Scenario:
- SMSF: Zenith Super Fund (Corporate Trustee)
- Members: Mark & Sarah
- Goal: Buy $750k commercial warehouse, lease to Mark’s business
- Funding: $300k SMSF cash + $450k loan from family trust (related party)
Compliance Checklist:
- Formal Loan Agreement & Bare Trust Deed before settlement.
- Interest at ATO Safe Harbour Rate or market rate.
- Security limited to property in Bare Trust.
- Lease at market rent, documented and paid on time.
Wrong Way: Charging 3% interest when market is 7.5%, poor documentation, or below-market rent → ATO deems income NALI → taxed at 45%.
Key Takeaways for 2025
- Get Professional Advice: Engage SMSF specialists for structuring.
- Liquidity Matters: Ensure strong cash flow and reserves.
- Document Everything: Investment strategy, valuations, agreements—all verifiable for audit.
Disclaimer: General information only. Not financial, legal, or tax advice. Seek licensed professional advice before acting.
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Credits
Sundaram Shanmugam, Smart SMSF Team
