Everything you need to know about Limited Recourse Borrowing Arrangements — how they work, the bare trust structure, LVR requirements, and the rules around borrowing to buy property through your super.
Last reviewed: April 2026 · By Turnkey Super
A Limited Recourse Borrowing Arrangement (LRBA) is the legal mechanism that allows a self-managed super fund to borrow money to purchase a single investment asset — most commonly real property. The term "limited recourse" refers to the most important feature of the structure: if the SMSF defaults on the loan, the lender can only claim against the specific asset purchased with the borrowed funds. The rest of the fund's assets — shares, cash, other property — are fully protected.
LRBAs are permitted under section 67A of the Superannuation Industry (Supervision) Act 1993 (SIS Act), which carves out an exception to the general prohibition on SMSF borrowing. This exception comes with strict conditions that must be met for the arrangement to remain compliant.
Under an LRBA, your SMSF cannot hold the purchased asset directly until the loan is fully repaid. Instead, a separate legal structure called a bare trust (also referred to as a holding trust or custodian trust) must be established to hold the legal title to the asset on behalf of the SMSF.
Here is how the structure works in practice:
The bare trust structure is what gives the LRBA its "limited recourse" character. Because the lender's security is limited to the asset held in the bare trust, your remaining fund assets — accumulated over potentially decades — are legally insulated from the lender's claims. This protection does not exist if the structure is set up incorrectly.
SMSF property loans carry stricter lending criteria than standard investment loans. The following ranges are typical across most SMSF lenders as of 2025:
| Property Type | Maximum LVR | Minimum Deposit |
|---|---|---|
| Residential (metro) | Up to 80% | 20% |
| Residential (regional) | Up to 70–75% | 25–30% |
| Commercial | Up to 65–70% | 30–35% |
| Rural / specialised | 50–60% | 40–50% |
The deposit must come from the SMSF's existing cash and liquid assets. You cannot make a special contribution to the fund specifically to fund the deposit without following standard contribution rules and caps.
If you are still deciding whether to invest in property through your super — and want to understand the broader tax benefits, eligible property types, and step-by-step purchase process — our comprehensive SMSF property investing guide is the best place to start.
Also read: SMSF Property Investing GuideMost SMSF lenders require a minimum fund balance of $200,000–$250,000 before approving an LRBA. This ensures the fund has sufficient liquidity to cover the deposit (typically 20–30% of the purchase price), establishment costs, stamp duty, and ongoing loan repayments without placing the fund's cash flow under strain. Some lenders set higher minimums for commercial property or larger loan amounts.
For residential investment property, most SMSF lenders offer LVRs up to 70–80% (meaning a deposit of 20–30%). For commercial property, LVRs are typically lower — most lenders cap at 65–70%, requiring a 30–35% deposit. Rural property and specialised assets tend to attract lower LVRs again. Interest rates on SMSF loans are generally higher than standard investment property loans due to the added complexity of the LRBA structure.
Under an LRBA, the SMSF cannot hold the property directly until the loan is repaid — this is a legal requirement of the SIS Act. Instead, the property must be held in a separate legal structure called a "bare trust" (also called a holding trust or custodian trust). The bare trust holds the legal title to the property during the loan term, while the SMSF holds the beneficial interest. Once the loan is fully repaid, the legal title is transferred from the bare trust to the SMSF itself. This structure is what limits the lender's recourse to the specific asset — protecting the rest of the fund.
Yes. An LRBA can be used to purchase commercial property, including offices, warehouses, retail premises, and industrial buildings. Commercial property is particularly attractive for SMSF members who operate a business, as the SMSF can purchase the business premises and lease it back to the related business on arm's-length terms. This allows business owners to make their super contributions while simultaneously building equity in the property that houses their business.
Yes, in virtually all cases. Most SMSF lenders will only extend LRBA finance to funds with a corporate trustee — a company structure that acts as the trustee of the fund, rather than individual members acting as trustees personally. A corporate trustee provides a cleaner legal structure for title holding, simplifies member changes, and reduces risk in the event of a member's death or incapacity. Turnkey establishes a corporate trustee as a standard part of SMSF setup.
No. This is one of the most important restrictions under the LRBA rules. While the property is held in the bare trust (i.e. during the loan term), you cannot make improvements to the asset — only repairs and maintenance that restore the asset to its original condition are permitted. Any improvement must wait until the loan is fully repaid and the title is transferred into the SMSF. This restriction is designed to prevent borrowing to fund capital improvements, which would circumvent the limited recourse nature of the arrangement.
An LRBA can be a powerful wealth-building strategy, but it is not suitable for everyone. Risks include: cash flow pressure if the property is vacant, higher interest rates than standard investment loans, and the complexity of maintaining a compliant bare trust structure. The strategy works best for members with a meaningful super balance, stable income contributions, and a long investment horizon. We strongly recommend speaking with an independent financial adviser before committing to an LRBA strategy. Our discovery call can help you understand whether the structure fits your circumstances.
Once the LRBA loan is fully repaid, the bare trustee transfers the legal title of the property from the bare trust to the SMSF trustee. This transfer is typically exempt from stamp duty in most Australian states (as the SMSF already held the beneficial interest throughout). After the transfer, the property is held directly by the SMSF and can be improved, refinanced, sold, or retained as an asset of the fund — with no further restriction from the bare trust structure.
Related pages: Pricing · FAQs · SMSF Property Investing
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