Setting Up SMSF Lending With the Right Structure
SMSF lending allows your fund to borrow under strict conditions, and DKM Accounting helps you meet the documentation and compliance requirements needed to make it work. From understanding what the ATO expects to preparing the documents lenders request, we support trustees and brokers in making SMSF loan applications viable, legal, and sustainable.
What Is SMSF Lending?
SMSF lending refers to a self-managed super fund borrowing money to acquire a single investment asset. In most cases, the asset is a commercial or residential property that the fund intends to hold as a long-term investment. The borrowing arrangement must be structured as a Limited Recourse Borrowing Arrangement (LRBA), a specific legal framework that ensures the lender’s rights are limited to the asset being financed. If the loan defaults, the lender cannot access the rest of the fund’s assets.
These types of arrangements are strictly regulated. The asset being purchased must qualify as a single acquirable asset under ATO rules, and the fund must ensure that the investment is consistent with its written investment strategy, is not used by members or related parties, and does not breach contribution or borrowing limits.
What Does the Lending Process Involve?
Reviewing Fund Structure
Most lenders will only consider applications from SMSFs that have a corporate trustee in place. This is not a technicality; it reflects both administrative flexibility and legal clarity around who controls the fund and its decisions. In addition to having a corporate trustee, the directors of that company must have valid Director Identification Numbers, and the fund’s trust deed must explicitly permit borrowing and the use of a holding trust. Without these elements in place, your broker or lender will not be able to proceed, and the fund may be exposed to compliance risk if it enters a loan arrangement without valid authority.
Establishing a Holding Trust (Bare Trust)
The asset being acquired with borrowed funds must be held in a separate legal trust known as a bare trust or holding trust. This trust becomes the legal titleholder while the SMSF retains beneficial ownership. Timing is critical here; the holding trust must be established before the property is purchased, and the contract must be signed in the correct name. Errors in this step are common and can lead to stamp duty being charged twice or to the entire structure being deemed invalid by the ATO. We work closely with your solicitor to ensure the deed, the structure and the acquisition all align from the beginning.
Ensuring the Loan Is at Arm’s Length
SMSF loans must be at market terms. This means the interest rate, repayment terms, loan-to-value ratio, and collateral structure must reflect what would be offered to an unrelated third party. If the loan is coming from a related party such as a family member or related trust, it must meet the ATO’s Safe Harbour standards to avoid breaching the non-arm’s length income rules, which can result in the entire income from the asset being taxed at 45 percent. We assess the loan terms and flag any areas where the structure might not satisfy ATO expectations, even if a private lender is willing to proceed.
What We Do (And Don’t Do)
Structuring and Pre-Application Review
We check your fund’s trust deed, trustee structure, and compliance history to ensure the SMSF is legally capable of entering into a borrowing arrangement. If a corporate trustee is required or a deed upgrade is necessary, we assist with the changes.
Documentation and Financial Records
We prepare or review the fund’s financial statements, contribution history, and investment strategy. These records are essential for loan approval and must show that the fund is in a position to meet repayments without breaching contribution caps or liquidity requirements.
Accountant’s Letters and Serviceability Confirmations
Most SMSF loans require a formal letter from the fund’s accountant confirming that the fund is financially capable of repaying the loan. We only issue these letters after a full review of the fund’s accounts and obligations. Lenders rely on this documentation, especially in low-doc environments.
Broker and Legal Collaboration
We communicate directly with your broker or legal team as needed, providing documentation and explanations to support your loan application. This often helps reduce delays or confusion caused by incomplete or mismatched documents.
Common Mistakes We Help Prevent
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Signing property contracts before the bare trust is established
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Purchasing assets in the name of the SMSF instead of the trustee
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Relying on informal family loans without documenting safe harbour terms
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Making repayments from outside the fund
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Failing to update the investment strategy before borrowing
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Claiming tax deductions incorrectly for interest or legal fees
DKM Accounting & Taxation Services was the best value for my tax return. David was very helpful, and the process was quick and hassle-free. Highly recommended.
Need a good tax team? David and his crew are the best. I’m very happy with my yearly return and their great service. Even when it’s busy, David finds time to answer my questions. I highly recommend them. You won’t be let down. Thanks, David and team!
Julia C.
Always had positive experiences with DKM .
David and the team have been very helpful .
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locations
Find DKM Accounting near you. Our locations make expert financial support easily accessible, whether in person or online.
Bella Vista, nsw 2153
Location
408, 29 Lexington Drive
Bella Vista NSW 2153
Hours
Monday: 9:30 am - 6:30 pm
Tuesday: 9:30 am - 6:30 pm
Wednesday: 9:30 am - 6:30 pm
Thursday: 9:30 am - 6:30 pm
Friday: 9:30 am - 6:30 pm
Saturday: Closed
Sunday: Closed
Contact
Deakin, ACT 2600
Location
2/8 Phipps Cl,
Deakin ACT 2600
Hours
Monday: 9:00 am - 5:30 pm
Tuesday: 9:00 am - 5:30 pm
Wednesday: 9:00 am - 5:30 pm
Thursday: 9:00 am - 5:30 pm
Friday: 9:00 am - 5:30 pm
Saturday: Closed
Sunday: Closed
Contact
Speak with an SMSF Accountant
Ready to manage your fund with confidence?
Frequently Asked Questions on smsf lending
Do I need a bare trust even if I already have an SMSF?
Yes. The bare trust is not a substitute for your SMSF, it’s a separate legal entity that temporarily holds the title of the asset being purchased with borrowed funds. Without this structure, the arrangement doesn’t qualify as a Limited Recourse Borrowing Arrangement (LRBA), and the loan may breach ATO rules. Even if your fund is otherwise compliant, borrowing without a bare trust usually results in the asset being held incorrectly, triggering stamp duty or invalidating the loan.
Why do lenders care if I have a corporate trustee?
From the lender’s perspective, a corporate trustee offers legal clarity, separation of personal and fund affairs, and greater ease if members change. It also helps streamline enforcement rights in case of default. Many lenders will not even assess an SMSF loan application unless the fund has a corporate trustee, because individual trustee structures are riskier to manage and harder to document across complex transactions.
Can my SMSF refinance an existing property loan?
Yes, refinancing is allowed under superannuation law, but the structure of the refinancing must still meet LRBA rules. The new lender must agree to the limited recourse terms, and the holding trust must remain in place unless the loan is fully repaid. We often assist with refinancing reviews, especially where the fund has changed auditors, trustees or strategy since the original loan was set up.
What happens if something goes wrong with the SMSF loan?
If the loan defaults, the lender is limited to recovering the asset held in the holding trust which is why it must be structured as an LRBA. However, the ATO will still examine whether the fund remained compliant throughout. If the fund breached contribution rules, made repayments from outside sources, or failed to update its investment strategy, penalties or loss of concessional tax treatment may apply even if the asset is lost.