From September 2007 a Self Managed Superannuation Fund (SMSF) has been able to borrow in order to invest. This borrowing is called a ‘Limited Recourse Borrowing (LRB)’. This LRB arrangement will occur when the trustee of an SMSF borrows money and then uses the borrowed funds to purchase a single asset or collection of identical assets to be held in a separate trust.
All investment returns from the assets belong to the SMSF in order to fund the members' retirement and, if the loan defaults, the lender's rights are limited to the asset held in the separate trust. Hence the term limited recourse borrowing, as there is no recourse to the other assets held in the SMSF.
