What is “limited” in an LRBA?

In a compliant limited recourse borrowing arrangement (LRBA), Australian superannuation law limits recovery against the self-managed superannuation fund (SMSF) trustee for a borrowing default to rights relating to the asset acquired. It does not automatically limit a personal guarantor’s liability.

What does the arrangement involve?

An LRBA allows an SMSF trustee to borrow to acquire a qualifying asset, held through a separate trust. The SMSF receives the beneficial interest and a right to acquire legal ownership by making the required payments. Strict conditions apply to the asset and the arrangement.

What is protected?

The restriction concerns which assets can be reached if the borrowing defaults. In a compliant arrangement, the lender cannot recover that debt from the SMSF’s other assets.

For example, suppose a loan balance is $600,000 and selling the acquired asset produces $520,000 after sale costs. The $80,000 shortfall cannot simply be recovered from the fund’s unrelated cash or shares. However, a personal guarantee may give the lender rights against the guarantor for that shortfall.

What about personal guarantees?

A member or director who signs a personal guarantee may expose assets outside superannuation. The guarantee’s wording determines the extent of that exposure, including any cap, interest and enforcement costs.

Do not assume the lender must sell the acquired asset before pursuing a guarantor. The documents and applicable law determine the enforcement rights.

If a guarantor pays, their rights to recover from the SMSF trustee must also be limited to the acquired asset for the arrangement to comply. They cannot have unrestricted reimbursement rights against the fund’s other assets.

What should you check?

Read the loan, guarantee, security and trust documents together. Identify who is signing, in what capacity, which assets are exposed and whether any liability cap includes interest and costs.

Limited recourse does not remove repayment obligations, investment losses or trustees’ duties. For new property arrangements from 10 August 2026, the property generally must qualify as business real property, broadly meaning property used wholly and exclusively in a business. Exceptions apply to earlier arrangements.

This article provides general information only and is not legal advice. Legal requirements and individual circumstances vary. Obtain advice about your specific situation.