Self Managed Super Funds: LRBA Notes and Their Benefits

Knowing where to invest your money for retirement is important in achieving financial security. Investing and contributing to a self managed super fund (SMSF) may be the key to financial success since you are basically pooling your money with other members in order to make larger investments that may yield better returns. While the average account balance recorded in June of 2015 was $561,906, the average SMSF balance generally averages in the hundreds of millions. If you don't have sufficient funds, you can always borrow on an SMSF through a LRBA note. 

The Basics of LRBA Notes

LRBA notes, also known as limited recourse borrowing arrangement notes, are for trustees who are interested in borrowing on the SMSF in order to diversify their investment. The loan from the LRBA note can only be used to buy or invest in a single asset. For example, you can either invest on a commercial property or a residential property. If the funds are being invested on property, they cannot be used to repair or improve the property.

The LRBA note will remain in effect until the borrowed money is extinguished. In other words, the loan is fully paid off. In the event that the loan cannot be repaid, the lender has the right to acquire legal ownership of the asset.

The Benefits of Borrowing Money on SMSF

Surprisingly, obtaining a loan using LRBA notes is rather easy, and most SMSFs will offer this type of service to their members. There are many benefits involved with obtaining a LRBA note. They include:

  • the ability to diversify your investment in order to reap larger yields and returns;
  • the ability to borrow more money than what a bank would typically be willing to offer you while paying a lower interest rate; and,
  • the ability to take advantage of superannuation tax concessions in the future to gain larger profits.

Conclusion

LRBA notes offer a compelling opportunity for investors to borrow money in order to invest in additional ventures that may have been out of their reach before. If you are interested in borrowing on your SMSF and taking out a LRBA note, you should always get more information on the terms, conditions and tax consequences that are involved from a specialized financial advisor. Keep in mind that the Australian Tax Office (ATO) enforces strict rules and penalties surrounding how the funds acquired from LRBA notes can be used. 

About Me

Defending my clients at all costs

When I sign on to defend a client, I have to find ways to poke holes in the prosecution's case no matter how air tight it seems. There are always technical and procedural issues to be enforced and work to be done to make sure my client's story is as strong and believable as possible. People who are not familiar with the justice system are often intimidated by the legal processes, so I help them to adjust quickly so that they can manage the stressful situations. This blog is for first time defendants wondering what exactly their lawyers do to manage the defense process behind the scenes.

Archive

Tags