SMSF Custodian Bare Trust Deed

How to borrow money in your Self-Managed Super Fund.

Does your SMSF want to borrow money to buy an asset? You cannot expose your Self-Managed Super Fund, which has many other assets, to this debt. Instead, your SMSF needs to borrow on a limited recourse basis. Therefore, if your SMSF cannot pay the debt or the asset becomes worthless, the SMSF can walk away free of the debt. There is no recourse against the SMSF or its assets by the banker.

SMSF Limited Recourse Borrowing Arrangement (LRBA)

To borrow money, the Superannuation Industry (Supervision) Act 1993 (SISA) requires a special bare trust structure. This is called a Limited Recourse Borrowing Arrangement (LRBA).

To allow the borrowing, you borrow and hold the asset all in a specific type of bare trust. The Legal Consolidated SMSF Custodian Bare Trust Deed complies with the ATO, the SISA legislation, and lenders, such as banks.

How do you make the SMSF Bare Trust Bank-Ready?

Lenders are defensive. They look for reasons to reject risky loan applications. If your Custodian Deed gives the Trustee too much power, the Bank’s legal team rejects it.

Standard bare-trust deeds fail because they are “active” trusts.

The Legal Consolidated SMSF Custodian Bare Trust Deed is uniquely drafted as a “Puppet Trust”. We strip the Trustee of all independent discretion. The Trustee is forced to act only on the SMSF’s direction.

This “Puppet” status is what Lenders (such as La Trobe, BOQ and Liberty) require.

Standard bare trust deeds often allow the Trustee (the trustee of the bare trust) to be indemnified against any assets held by the Beneficiary (the SMSF). This is dangerous for an SMSF.

If a loan goes bad, the Bank seeks to recover from the Custodian Trustee. If the Custodian had a standard indemnity, it can then seize your SMSF’s other assets (like your share portfolio and cash).

Legal Consolidated protects you. We hard-wire a “Limited Recourse Indemnity” into the Deed.

• The Custodian Trustee can only claim against the single asset in the Bare Trust.

• Your SMSF’s other assets remain safe and untouchable.

• This ensures you remain compliant with SISA Section 67A.

The “Single Acquirable Asset” Protection in the Custodian Trust Deed

The legislation strictly prohibits a Limited Recourse Borrowing Arrangement (LRBA) from holding more than one asset. If a deed allows for “multiple assets,” the borrowing arrangement is void. The ATO may force you to sell the property.

Our Deed is drafted to hold a Single Acquirable Asset.

• It “locks down” the bare trust structure.

• It prevents accidental breaches of the Superannuation Industry (Supervision) Act.

• It ensures the arrangement remains a valid “Bare Trust” for tax purposes.

Avoiding the “Development” Trap when gearing a SMSF

Property development in an SMSF is a minefield. It often breaches the “Sole Purpose Test” and “Replacement Asset” rules.

Our Bare Cusodian Deed is engineered explicitly for passive investment. By restricting the Trustee to holding the asset, we protect the SMSF from being deemed a “business.” This helps ensure your fund remains a compliant superannuation fund and continues to enjoy the concessional 15% tax rate.

How to escape double stamp duty on an SMSF Bare Trust Deed

Timing of the Custodian Bare Trust is everything.

If you sign an SMSF Bare Trust in the wrong order, the applicable State Revenue Office inflicts Double Stamp Duty. This means you pay stamp duty on the Contract of Sale, and then full stamp duty again on the Bare Trust Deed.

The signing order varies between States (e.g., QLD usually requires the Deed first; NSW requires the Contract first).

Unlike non-law-firm websites that try to look like law firms, we provide legal advice in our cover letter. This is for your specific states.

Can an SMSF borrow money for repairs?

Yes. Our Deed expressly empowers the Trustee to use borrowed funds for repairs (restoring the asset to its original condition).

However, we draft the Deed to protect you from the “Improvement” trap. You strictly cannot use borrowed money to improve an asset (e.g. adding a new bedroom). This creates a “Replacement Asset” which breaches the borrowing rules. Our Bare Trust ensures your borrowing remains compliant with SMSFR 2012/1.

Why use a Legal Consolidated SMSF Bare Trust Deed?

You are building a wealth vehicle for retirement. We are a law firm specialising in superannuation.

• Lawyer-Drafted: Prepared by specialist superannuation lawyers.

• We are a law firm: We are not a website that uses a law firm’s template: We are the law firm. We stand by our documents.

• Audit-Ready: Our documents are drafted to meet the requirements of your SMSF Auditors and the ATO’s best-practice guides.

Start building your SMSF Custodian Bare Trust Deed now. Telephone us for free legal advice, but start the free building process first, as it answers most questions. The free building process is highly educational.