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Does an LRBA asset have to be transferred when the loan is repaid?

By Michael Harkin
28 January 2021 — 4 minute read

A question often asked by SMSF trustees and their advisers is: the SMSF borrowing has been repaid, so what do we need to do now?

Topdocs’ national manager for training and advice, Michael Harkin, considers the options available to trustees where the asset acquired under a limited recourse borrowing arrangement remains held by the bare trustee, after the loan has been repaid.


What is currently referred to as a limited recourse borrowing arrangement came into being in 2007, when the “instalment warrant” legislation was introduced to the Superannuation Industry (Supervision) Act 1993 (SIS Act).

The SIS Act was subsequently amended in 2010 when the term “limited recourse borrowing arrangement” (LRBA) was introduced as part of the new sections 67A and 67B.

ATO ‘surprise’

The ATO, in its publication titled “Limited recourse borrowing arrangements by self-managed super funds – questions and answers” (ATO Q&As), first published following the 2010 changes to the SIS Act, caused a significant amount of surprise among practitioners and led to some debate with the ATO regarding the commissioner’s interpretation of a relevant part of the law.

Basically, the ATO’s interpretation of the legislation caused it to determine that, unless an asset acquired under an LRBA was promptly transferred by the bare trustee to the SMSF trustee following clearance of the loan, the asset held by the bare trustee would be an in-house asset of the SMSF and, potentially, breach the 5 per cent in-house assets limit.


In summary, the ATO took the view that:

  • the holding trust in an LRBA will generally be a related trust of the SMSF;
  • as the holding trust held the asset acquired under the LRBA for the SMSF trustee; and
  • the investment by the SMSF was therefore an investment in a related trust and, accordingly, an in-house asset of the SMSF (unless an exemption applies).

An exemption is provided under s 71(8)(b) of the SIS Act, which effectively states that an asset held under an LRBA will only be an in-house asset if it would ordinarily be an in-house asset (i.e. regardless of the whether or not a borrowing exists).

The ATO appeared to form its view from the obverse of that exemption, in that the asset would become an in-house asset of the SMSF unless it was immediately transferred to the SMSF trustee following repayment of the loan.

The ATO appeared to have reached its conclusion by interpreting s 71(8) of the SIS Act differently to most industry practitioners, resulting in the surprise mentioned earlier.

While many have interpreted the provisions to indicate that there will not be any in-house asset issues while the loan is in place, the ATO interpreted that to mean there will be in-house asset issues once the loan has been repaid, if the bare trustee continues to hold the asset.


The ATO, in April 2014, released a “legislative instrument”, SPR 2014/1, titled “Self-Managed Superannuation Funds (Limited Recourse Borrowing Arrangements – In-house Asset Exclusion) Determination 2014”, issued under the provisions of s 71(1)(f) of the SIS Act, which permits the regulator to make determinations to exclude particular investments from the reaches of the in-house assets definition.

In the determination, the ATO took a practical approach to the argument, by excluding an investment in a related trust, held by an SMSF as a required part of an LRBA, from being an in-house asset:

  • following creation of the trust but before the asset is acquired;
  • during the term of the borrowing; and
  • where the asset continues to be held by the bare trustee after the borrowing has been repaid.

What does that mean?

SMSF trustees will no longer be compelled, through in-house asset concerns, to require the bare trustee to transfer the asset once the borrowing has been repaid.

One of the major considerations at the time of clearance of the borrowing is whether certain taxes will apply if the asset is transferred to the SMSF trustee, possibly as a result of poorly drafted documentation at commencement of the LRBA.

Most importantly, whether stamp duty will be assessed by the relevant revenue office in the jurisdiction of the particular asset.

Additionally, the question as to whether other taxes such as GST and capital gains tax will apply may, in certain circumstances, be reasons to have the bare trustee continue to hold the asset.

Alternatively, the SMSF trustee may plan to sell the asset in the near future and, rather than incur costs to transfer the asset to the SMSF, it arranges for the bare trustee to hold the asset pending negotiation of a sale.


One caution following from the determination relates to the proposed activity in regard to the property.

The ATO appears to be of the view that if, for example, the asset is to be significantly altered (i.e. subdivided or its use changed), then the exemption under the determination will no longer apply.

In the event such actions are proposed, consideration of a transfer of the asset to the SMSF trustee may be the best option.


Regardless of the reason why SMSF trustees may wish to delay the transfer, the determination provided welcome resolution of the argument which, for some time, left SMSF trustees and their advisers uncertain as to their obligations following repayment of the borrowing.

An SMSF trustee has the option to have the asset transferred into its name, or for it to continue to be held under the bare trust.

If the latter, be careful that:

  • the bare trust arrangement remains, in that the SMSF trustee continues to direct the bare trustee in regard to the asset; and
  • the nature of the asset is not altered.

Michael Harkin, national manager for training and advice, Topdocs

Does an LRBA asset have to be transferred when the loan is repaid?
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