Limited recourse borrowing arrangements can use one bare trustee for multiple bare trusts

By Gary Chau (, Lawyer, and David Oon (, Senior Associate, DBA Lawyers


A common question we get asked when a client’s self managed superannuation fund (‘SMSF’) is undertaking a limited recourse borrowing arrangements (‘LRBA’) is whether there needs to be a separate bare trustee (usually a company) for each bare trust. The short answer is no. However, it is helpful to also go through the other aspects of LRBAs to give more detailed guidance.

Broadly, SMSF trustees are prohibited from borrowing or maintaining an existing borrowing, unless the borrowing complies with the exception under s 67A of the Superannuation Industry (Supervision) Act 1993 (Cth) (‘SISA’). As a simplification, the key features for LRBAs are as follows:

  • The SMSF trustee borrows to acquire a single acquirable asset.
  • The asset must be held on trust, with the SMSF trustee having a beneficial interest in that asset. This other party is often referred to as either a bare trustee, a holding trustee or a custodian. In this article, this other party will be referred to as the bare trustee. However, technically this is a presumptive name since not all of the trusts for LRBAs are actually bare trusts for tax purposes.
  • The bare trustee is the legal owner of the asset purchased.
  • The SMSF trustee has the right to obtain legal ownership of the asset by making one or more payments after acquiring the beneficial interest.
  • If the SMSF trustee were to default on the loan, the lender’s rights would be limited to the rights relating to the asset.

A crucial feature for an LRBA to comply with the SISA requirements is that the asset must be a ‘single acquirable asset’. Section 67A of the SISA provides that the borrowed money must be used ‘for the acquisition of a single acquirable asset’ and, as noted above, it also provides that ‘the acquirable asset is [to be] held on trust so that the [SMSF’s] trustee acquires a beneficial interest in the acquirable asset’.

This means that when the asset is initially purchased, legal title to that asset must be registered in the name of another entity (ie, the bare trustee).

Since a bare trust must be in respect of a single acquirable asset, let’s now examine what the word single acquirable asset means.

Single acquirable asset

The starting point to this definition is: what is an asset? Asset is defined in s 10 of the SISA to be ‘any form of property and, to avoid doubt, includes money (whether Australian currency or currency of another country)’. ‘Acquirable asset’ is defined in s 67A(2) of the SISA, which provides that the acquirable asset must not be money (whether Australian currency or currency of another country) or an asset that an SMSF trustee is prohibited from acquiring. Accordingly, an SMSF cannot borrow to acquire money, or simply ‘borrow money’ without acquiring a single acquirable asset.

On whether an asset is a ‘single acquirable asset’, the ATO state that it ‘is necessary to consider both the legal form and substance of the asset acquired’. Thus, in the typical case, where an SMSF trustee is acquiring real estate and there is only a single title, this property would be a single acquirable asset for the purposes of s 67A of the SISA.

Where there are multiple real estate titles, the ATO in SMSFR 2012/1 adopt the view that multiple real estate titles can be treated as a single acquirable asset only if there is a physical or legal impediment requiring them to be dealt with together. However, this is to be decided having regard to the circumstances of each case. In determining whether multiple real estate titles can be treated as one single acquirable asset, the ATO say the following in SMSFR 2012/1:

  1. Factors relevant in determining if it is reasonable to conclude that what is being acquired is a single object of property include:
  • the existence of a unifying physical object, such as a fixture attached to the land which is permanent in nature and not easily removed and that is significant in value relative to the value of the asset; or
  • whether under a law of a State or Territory the two assets must be dealt with together.

Unless the above factors in SMSFR 2012/1 conclude that what is being acquired is a single acquirable asset, the general rule is that if an SMSF trustee wants to acquire two assets (ie, they are identified in two titles), then two bare trust arrangements and two loans will generally be needed: one for each asset. Ideally, two separate contracts will also exist: one for each asset.

Why does a bare trust have to only contain one asset?

The bare trust should only contain one asset, namely, the single acquirable asset, to ensure that the bare trust itself does not become an in-house asset for the SMSF. If the bare trust contains any other assets — even a bank account — this may give rise to negative in-house asset rule implications (s 71(8)(c) of the SISA).

One bare trustee for multiple bare trusts

Where an SMSF trustee wishes to borrow to purchase multiple assets, a separate bare trust will be required for the acquisition of each single acquirable asset. However, there is no requirement in the SISA or Superannuation Industry (Supervision) Regulations 1994 (Cth) that different bare trustees (usually companies) need to be used for each LRBA.

Thus, one company could be the bare trustee of multiple bare trusts in respect of the same SMSF.

Further, while there is no requirement that the bare trustee has to be a company (ie, you can in theory have individual trustees act as bare trustee), banks will almost inevitably require that the bare trustee is a company before they agree to lend to an SMSF.

Bare trust should play a minimal role

Ideally, the bare trustee should play as minimal a role in the LRBA as possible. For example, any income derived from the asset (such as rent or dividends) should be received by the SMSF trustee directly. The SMSF trustee should also make the loan repayments to the lender.


To maximise administrative efficiencies, the bare trustee should typically not register for a TFN or an ABN. Further, when establishing a new corporate bare trustee, there should be no public officer appointed or bank account opened.

The bare trustee should ideally do nothing more than hold the legal title to the asset.

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This article is for general information only and should not be relied upon without first seeking advice from an appropriately qualified professional. The above does not constitute financial product advice. Financial product advice can only be obtained from a licenced financial adviser under the Corporations Act 2000 (Cth).

Note: DBA Lawyers hold SMSF CPD training at venues all around. For more details or to register, visit or call 03 9092 9400.

For more information regarding how DBA Lawyers can assist in your SMSF practice, visit


28 August 2017