SMSF Borrowing - The Process

The process of borrowing via your SMSF may seem difficult from the outside, but with the right documentation and support, the process is actually quite straight forward

Download a summary brochure of the procedures to commence an SMSF Borrowing

The general steps in facilitating a Super Fund Borrowing can be summarised as follows.

It is important to note that each State Revenue Office has individual requirements regarding the timing of the execution of the contract of sale and the Bare Trust, as well as the description of the purchaser on the contract of sale.

We recommend you consult with the solicitor preparing your Contract of Sale in regards to this matter before signing any documentation.

Step 1 - Determine if this is an appropriate investment for the Fund.

We recommend the trustees of the SMSF speak with a qualified adviser to determine if a SMSF Borrowing is an appropriate investment for the Fund before proceeding with this type of transaction.

Step 2 - Find the Property or other asset the SMSF wishes to purchase

The property (or other asset) must be a property that the Super Fund could otherwise invest in if bought outright, and must comply with the in-house assets rule and sole purpose tests. Importantly, the asset must also be classified as a 'single acquirable asset'.

Step 3 - Obtain pre approval of the Loan from a bank, mortgage broker or related party.

Step 4 - Determine who will act as Trustee of the Bare Trust.

The Trustee of the Bare Trust cannot be the same Trustee as the Trustee of the Super Fund. Topdocs recommends the use of a company to act as Trustee of the Bare Trust, however this is not a requirement under the legislation. It is however a requirement of the majority of lenders lending to SMSFs to borrow.

Step 5 - Have the required documentation completed for the SMSF to commence the borrowing.

This documentation is required for the Fund to comply with the SIS Legislation and the Australian Tax Office requirements, as well as the requirements of the banks if an external lender is being used.

This documentation includes:

• The Bare Trust (also sometimes called a Custodian, Security or Custody Trust).
• Establishing a company to act as trustee of the Bare Trust (if required)
• Updating the Super Fund Trust Deed (if required)
• Updating the Fund’s Investment Strategy (if required)

Step 6 - Sign the contract in the name of the Bare Trustee (or as required by your state revenue office)

Each State Revenue Office requires specific wording on the contract of sale - contact Topdocs for more information regarding this.

NOTE: the contract of sale can be signed before preparation of the Bare Trust documentation in some limited circumstances, but generally, it is best for the contract of sale to be signed on the same day as the Bare Trust Deed. Again, consultation with the solicitor preparing the Contract of Sale is essential.

Step 7 - Settle the property with the Bare Trustee as the title holder.