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14 December 2007
Lending to self managed super funds
In September 2007 the Superannuation Industry (Supervision) Act 1993 (the SIS) was amended to allow a super fund trustee to borrow to acquire an asset. A super fund can borrow to acquire an asset where:
- the loan is limited recourse (ie from the fund’s viewpoint, the lender’s only security is the asset itself: it cannot access the fund’s other assets);
- the fund would be entitled to invest in the asset directly; and
- while the loan is on foot, a third party – a ‘security trustee’ holds legal title to the asset on trust for the fund trustee which has the right to call for the transfer of legal title to it, when the loan is repaid and the mortgage discharged
So, the ability for a self managed super fund to borrow presents an opportunity not only for the fund to increase its asset portfolio, but good opportunities for lenders.
How can it work in practice?
This example focuses on a fund trustee borrowing to acquire real property, either commercial or residential. If it is residential, the fund can’t acquire it from a related party, eg the fund member or their family company or trust.
Tenant
As well as the specific rules noted above, there is a raft of superannuation prudential requirements which must be considered in making a geared investment. From a lender’s view point, it is a good outcome as the prudential requirements demand conservative investments and levels of borrowing.
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