Loans to buy shares

An SMSF cannot ordinarily take out loans to purchase shares. There are two exceptions to this rule where listed shares can be bought using the following borrowing arrangements:

Instalment Warrants
Limited Recourse Borrowing Arrangements

Single acquirable asset

The loan must be for a single acquirable asset.

Section 67A (3) states an asset is an acquirable single asset, if the assets in the collection have the same market value as each other and the assets in the collection are identical to each other. For example a collection of shares of the same class in a single company.

 

Ownership of the acquired asset

Superannuation law requires that the asset purchased with the borrowed funds to be held in a separate trust (holding  trust) to the SMSF. So accordingly, a bare trust structure should be set up and must be the legal owner of the acquired asset. However, the asset is held for the benefit of the SMSF, so the SMSF is the beneficial owner. The SMSF will receive the income generated by the acquired asset and will therefore be responsible for making loan repayments at commercial terms and at an arm’s length basis as included in the loan agreement.

An SMSF can also invest in properties with a borrowing arrangement. Please see our property investment page for more information.

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We are Melbourne based with clients throughout Australia. Our SMSF administration service is mostly paperless. This enable us to charge a fair fee, resulting in a good value-proposition for you.

No Advice

Superannuation Warehouse is an accounting firm and do not provide financial advice. All information provided has being prepared without taking into account of the Trustees’ objectives, financial situation or needs. Because of that, Trustees are advised to consider their own circumstances before engaging our services.

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