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:
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.