Why Consider SMSF Gearing and LRBA?
The Alternative Way to Build Superannuation Wealth

Leveraging through a Self-Managed Super Fund (SMSF) with Limited Recourse Borrowing Arrangements (LRBAs) is a strategic choice for growth-focused investors aiming to significantly enhance their superannuation balances and access investment opportunities that might otherwise be out of reach.

Discover The Value Of SMSF LRBA Advice​

Using LRBA loans allow SMSF trustees to use traditional gearing strategies to accumulate wealth and generate tax-effective income within their superannuation benefits.

In Australia, savvy investors often utilise Self-Managed Super Fund (SMSF) Limited Recourse Borrowing Arrangements (LRBA) to enhance their superannuation investments. This strategy, commonly known as 'SMSF gearing,' involves borrowing funds to invest in assets within an SMSF.

What is Gearing?

Gearing generally means borrowing money to buy assets. When applied to superannuation, gearing allows SMSF trustees to borrow money to purchase a single asset or a collection of identical assets to enhance their retirement benefits.

What is an LRBA Loan?

An LRBA loan is a specific type of borrowing by SMSFs that allows the fund to borrow money for investment purposes while limiting the lender’s recourse to the specific asset purchased with the borrowed funds. This means that if the SMSF fails to meet the loan obligations, the lender’s rights are limited to the asset purchased with the LRBA loan, protecting other assets within the superannuation fund.

Engaging the Services of an SMSF-accredited Financial Adviser

SMSF LRBAs offer a compelling option for investors looking to expand their superannuation assets and explore new investment avenues. Engaging with an SMSF-accredited financial adviser can provide professional guidance to help you understand the potential of this investment strategy, contributing significantly to building your super wealth.

Why SMSF Gearing?

Better After-tax Returns

It can deliver significantly better after-tax returns compared to traditional borrowing outside super.

Reduce Contribution Tax

It can significantly reduce the contributions tax payable due to gearing losses within the fund.


It is an opportunity to diversify a super portfolio and therefore reduce the overall volatility and risk on the portfolio.

Asset Protection

Asset protection from commercial and Bankruptcy Acts subject of course to anti avoidance rules.


The mortgage lender has no access to other assets in your SMSF (or outside of it) in the event of a default.

Potential CGT Deferment

It allows you to defer any capital gains until retirement, at which stage they may become tax free (subject to legislation).

Ideas & Insights

Using LRBAs can enhance your SMSF's investment capabilities and potentially lead to greater retirement benefits. However, it's essential to carefully assess your personal circumstances, consult with financial professionals, and ensure you are fully aware of the risks and costs associated with such a strategy.

Borrowing in super to buy property using a Limited Recourse Borrowing Arrangement (LRBA) has become popular among Australian investors for several compelling reasons:

  1. Increased Buying Power and Property Access: LRBAs enable SMSF trustees to purchase more expensive properties than they might otherwise afford by combining their super funds with borrowed money. This strategy can open up investment opportunities in real estate that provide both rental income and potential capital appreciation over time.
  2. Tax Efficiency: Property investments within SMSFs benefit from concessional tax treatment. Earnings from rental income are taxed at a reduced rate of 15% during the accumulation phase, and capital gains from the sale of the property can be significantly reduced if the property is held for over a year. Further tax reductions apply if the property is sold during the pension phase, potentially dropping to zero.
  3. Asset Protection: The structure of an LRBA provides a layer of security for the SMSF’s assets. In case of default on the loan, the lender’s recourse is limited to the property secured by the LRBA, safeguarding the other assets within the SMSF from any claim.
  4. Portfolio Diversification: Real estate can diversify an investment portfolio that is typically dominated by stocks and bonds. This diversification can reduce overall investment risk and stabilise returns, as property and financial markets often react differently to economic conditions.

However, investing in property via LRBAs also comes with responsibilities and risks:

  • Cash Flow Considerations: SMSFS must maintain sufficient liquidity to manage loan repayments alongside other fund expenses. Property investment can be cash-intensive due to upfront and ongoing costs such as stamp duty, legal fees, and maintenance expenses.
  • Compliance and Complexity: Investing through an SMSF and using LRBAs involves strict legal and regulatory requirements, including adherence to the sole purpose test—ensuring the investment solely benefits members in retirement. These investments require careful planning and management to avoid regulatory pitfalls and ensure they align with the fund’s overall investment strategy.
  • Market Risks: Like any investment, property markets carry the risk of volatility, which can affect the value of the property and the returns from rental income.

Increased Investment Opportunities: LRBAs allow SMSF trustees to access more significant and potentially more lucrative investments than would be possible with available cash alone.

Tax-Efficient Growth: The earnings on investments within an SMSF are taxed at a concessional rate (generally 15%), and if the asset is sold during the pension phase, any capital gain may be tax-free.

Asset Protection: As the loans are limited recourse, they offer a level of protection to the other assets within the SMSF.

When establishing a Self-Managed Super Fund (SMSF), several important factors must be considered to ensure it aligns with your retirement goals and financial situation. Here’s what to think about and why:

Purpose and Goals: Determine why you want to set up an SMSF. Common reasons include more control over investments, potential cost savings, or specific investment needs that public super funds cannot meet. Your goals should justify the cost and effort of running an SMSF.

Investment Strategy: Your SMSF needs a clear, documented investment strategy that considers the fund members’ risk tolerance, diversification, and expected return on investments. This strategy should be regularly reviewed and must align with the members’ respective retirement goals.

Regulatory Compliance: SMSFs are tightly regulated by the Australian Taxation Office (ATO). You must comply with the legal obligations, including the sole purpose test, to ensure the fund solely benefits members in their retirement.

Costs: Running an SMSF can be costly, including setup fees, ongoing management fees, auditing costs, and investment fees. Ensure the potential benefits outweigh these costs.

Financial Acumen: Managing an SMSF requires a certain level of financial literacy. Members must understand various investment types, taxation rules, and legal duties.

Insurance: Consider the types of insurance (like life and disability cover) you might need to include within your SMSF to provide financial security for members and their dependents.

Age Considerations for LRBAs: Younger individuals (e.g., in their 40s to early 50s) might have a more aggressive investment approach and can consider LRBAs to enhance their long-term growth. In contrast, those closer to retirement should be cautious with leveraging due to less time to recover from potential losses.

Contribution Capacities and LRBAs: Those who are able to make higher contributions (concessional and/or non-concessional contributions) might better utilise LRBAs as they can cover loan repayments and potential downturns without impacting other investment strategies.

Yes, a Self-Managed Superannuation Fund (SMSF) can indeed purchase business or commercial property as part of its investment strategy. 

Process Flow:

Check SMSF Trust Deed: Ensure that the SMSF trust deed permits the purchase of property and, if applicable, allows for borrowing.

Compliance with Regulations: Any investment, including property, must comply with the Superannuation Industry (Supervision) Act 1993 (SIS Act). This includes the ‘sole purpose test’ which ensures the SMSF is maintained for the sole purpose of providing retirement benefits to its members.

Cash Purchase or Borrowing: If the fund has sufficient cash, it can purchase the property outright. Alternatively, it can use a Limited Recourse Borrowing Arrangement (LRBA) to borrow funds. In an LRBA, the loan is secured against the property, and other fund assets are protected from any recourse by the lender.

Arm’s Length Transaction: The purchase must be made at a market rate, and the property must be a commercial arm’s length transaction to avoid contravening superannuation laws.

Personalised Consideration:

When considering purchasing property through your SMSF, it’s important to assess whether this aligns with your overall retirement strategy. Consider your fund’s current asset mix, your retirement timeline, and your risk tolerance. Consult with an SMSF professional to ensure that any investment decisions are compliant with superannuation laws and are in the best interests of all fund members.

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