SMSF borrowing (related party)

Self Managed Superannuation Fund Borrowing — what's involved, and how to set up the legal documents

July 2010: Change of name for SMSF Borrowing: "Instalment warrant borrowing" now called "limited recourse borrowing"

On 7 July 2010, the law about SMSF borrowing changed in various ways. One of those changes was that "instalment warrant borrowing", is now called "limited recourse borrowing". The two names broadly refer to the same arrangement.

You can read an article here about the changes. The article sets out:

• when Cleardocs documents were updated to reflect the changes;
• which version of the Cleardocs deed is required for SMSF borrowing; and
• what needs to be done for existing orders.

Two Cleardocs limited recourse borrowing document packages: one for "bank lender", one for "related party lender"

Cleardocs enables you to create 2 different document packages for SMSF borrowing ("limited recourse borrowing arrangements") — as allowed under Section 67A of the Superannuation Industry (Supervision) Act 1993.

The 2 Cleardocs limited recourse borrowing document packages are different depending on whether:

• the lender is a related party of the SMSF's trustee(s) or is some other third party (but not a bank); or
• the lender is a bank — after feedback from the banks, we tailor our SMSF borrowing documents to reflect our understanding of the legal requirements of NAB, Westpac, and ANZ. As far as we know, our standard documents meet the requirements of all other lenders, On our interface, we ask you which bank is the lender so we can tailor the documents if necessary. The rest of this page describes each of these document packages.

The rest of this page describes each of these document packages.

Cleardocs deed required for Cleardocs limited recourse borrowing document packages

To use a Cleardocs limited recourse borrowing document package, the SMSF must have a Cleardocs deed which was created or updated on or after 31 January 2008. However, since that time the deed has been modified to reflect feedback from the banks. The latest version of our deed — which meets all the banks' requirements that we know about — was implemented on 4 May 2009.

So if the lender to your SMSF is a bank, then the process with the bank is likely to go more smoothly if the SMSF has a deed that was created, or last updated, after 4 May 2009.

You can update the SMSF's to a Cleardocs deed — or to the latest version of the Cleardocs deed — here for $99.

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What the SMSF borrowing document packages include

All our master SMSF borrowing documents are signed-off by our lawyers at Maddocks.

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What the SMSF borrowing document packages do not include

What information do you need to order a limited recourse borrowing document package for SMSF borrowing?

You can download our checklist of the information required to order a limited recourse borrowing document package for SMSF borrowing here.

You will need legal advice

To use either document package, the fund must obtain legal advice. Legal advice is required for two primary reasons:

What the pack does not include

1. The Limitations of this Pack As this Pack does not include the transaction documents described in the 'What the pack does not include' table above, you need legal advice to arrange those documents.
2. SMSF Compliance with Superannuation Law Although this Pack provides documents which will satisfy the requirements of Section 67A of the SIS Act, the 'limited recourse borrowing arrangement' must otherwise be in compliance with all the requirements of superannuation law. A lawyer can advise on these matters

If you do not have a lawyer then you are welcome to call the lawyers at Maddocks, who:

• if you are in Victoria or New South Wales, will give you a quote for the work; or
• if you are in another state or territory, will refer you to its affiliated firms.

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More information about SMSF limited recourse borrowing arrangements

For more information about limited recourse borrowing arrangements and SMSF borrowing, you can:

• read an article on the new changes to the SIS Act (effected in June 2010). Since the publication of this article, the bill has been approved by Parliament and the changes will be law in early July;
• read an article — which has an interactive graphic overview — about how Instalment Warrants work, the asset's journey to the trustees, the documents involved, and some of the emerging issues; and
• read our ClearLaw articles on SMSF borrowing, — see:
  • "SMSF borrowing: tax risk for any payments under a guarantee - draft income tax ruling"
  • "SMSFs funding property development through Instalment Warrants: the possibilities"
  • "Better Super" Developments: Investments in Instalment Warrants by Superannuation Funds Segregating
• read our Blog posts, there are articles on SMSF limited recourse borrowing in May 2010, July 2009 and September 2009, see here then click the relevant month in the right-hand column, then click on the relevant article
• view a video. Speakers include Julian Smith, Partner, Maddocks, Fiona Da Silva from St George Bank, and Cleardocs founder and Managing Director, Christopher Balmford

Order the bank lender document pack

Order the related party lender document pack

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Questions or further information

If you have questions:

• about how to use Cleardocs, contact the Cleardocs helpline on 1300 307 343.
• about legal issues, contact the Cleardocs helpline on 1300 307 343. If you need advice, we will arrange for you to speak with a lawyer at Maddocks. The firm provides a free legal helpline in relation to the documents Cleardocs provides. If you require other legal advice in relation to your particular circumstances, then this will be charged for.