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.

This structure is also known as an SMSF Property Trust, Holding Trust, or Bare Trust Deed.

How to gear your SMSF: the 5 Golden Rules

Step 1: Does your SMSF Deed allow borrowing?

Before you look at real estate or the shares you want to buy, check your SMSF Deed. Does it explicitly allow borrowing? Many modern SMSF deeds ban gearing. If your SMSF Deed is silent or outdated, update it. 

Step 2: Pre-Approval: finding the money to gear your new SMSF asset

Unless you are self-funding, speak with your financial planner and accountant. You need to know exactly how much your SMSF can borrow.

SMSF gearing warning: Do not sign a Contract of Sale yet. If you sign the contract in your own name or the SMSF’s name before the structure is set up, you trigger double stamp duty.

Step 3: Build the “Puppet” Structures (SMSF Bare Custody Trust)

You build two specific entities before you sign the contract to purchase or any loan agreements

1. The Corporate Trustee: Build a separate new company to act as the trustee of the SMSF Bare Trust.

2. The Bare Trust Deed: Press the above Start Building for Free.

Step 4: Sign the Contract of Sale to buy the geared SMSF asset

Now that your Company and SMSF Custody Bare Trust are both in place, sign the contract of purchase. The purchaser under the agreement must be clearly stated as the Bare Trustee (the company you set up in Step 3), NOT your SMSF Trustee.

E.g. Mechani Street Pty Ltd ACN 838383838 as trustee for the Bare Trust dated on 28 December 2026.

Step 5: Settlement and Registration of the geared SMSF asset

The loan is drawn down, the property or shares settle, and the title is registered in the name of the Bare Trustee. Your SMSF now “beneficially” owns the asset and collects the rent or dividends. Your SMSF declares the income and expenses (not the geared bare trust).

What is an SMSF Custodian Bare Trust (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 has a standard indemnity, it seizes your SMSF’s other assets (such as 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.

Residential vs Commercial Property SMSF Custody Trust Deeds

Legal Consolidated’s Bare Trust Deed is fully compliant for both residential homes and commercial premises (such as offices, factories, or warehouses), provided the ‘Single Acquirable Asset’ rule is met. If you want to gear a second property, build a separate SMSF Bare Trust.

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

Timing of the Custodian Bare Trust is everything to avoid double stamp duty:

• NSW, ACT, TAS: Sign the Contract of Sale FIRST, then the Bare Trust Deed.

• QLD, WA, NT: Sign the Bare Trust Deed FIRST, then the Contract of Sale.

• VIC: Sign the Contract of Sale first (but potentially can be done simultaneously).

Note: Our cover letter will provide specific legal advice for your state or territory.

The Risk: ATO Audits on “Active” SMSF Custody Trusts

We are seeing increased ATO scrutiny of “off-the-shelf” Bare Trust deeds available on non-law firm websites.

The problem lies with what the ATO calls “active” bare trusts. The ATO is concerned that many Custodian Trustees are granted too much power. Under Section 67A of the Superannuation Industry (Supervision) Act (SISA), the Custodian’s role must be “passive”.

From what we are seeing, if the Custodian has duties beyond simply “holding” the title, such as:

• a discretion;
• a requirement to preserve;
• the power to manage property; or
• allowing bank accounts;

then the gearing rules are breached.

If an SMSF Bare Trust Deed is faulty:

• The borrowing arrangement is non-compliant.
• You risk paying double Stamp Duty—either immediately or when you eventually transfer the asset from the Bare Trust to the SMSF.
• The property or share must be immediately sold

Checklist to see if your SMSF Property Trust is ATO compliant

If you have an existing Bare Trust or are about to build one, contact the provider or law firm that prepared it to confirm the following three points:

1. Is it a “Puppet” Trust? The Custodian Trustee must be stripped of all discretion. It must act only on the direction of the SMSF Trustee. If the Deed allows the Custodian to make decisions, open bank accounts, or manage the property independently, this ambiguity breaches SIS Regulations.

2. Does it strictly prohibit “Improvements”? The legislation allows repairs but bans improvements when borrowed money is used. A compliant Bare Trust Deed should expressly restrict the Trustee from carrying out improvements that create a “Replacement Asset”. (You can usually improve the asset using the SMSF’s own cash, but the Bare Trust Deed must forbid using the loan money for this.)

3. Was the signing order correct for your State? Did the provider give you specific legal advice on whether to sign the Deed or the Contract of Sale first?

• Example: In NSW, signing the Deed before the Contract can trigger double duty. In QLD, the reverse is often true.

Legal Consolidated’s Bare Trusts comply.

Can an SMSF borrow money for repairs with an SMSF Property Trust?

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.

Can I improve or renovate the SMSF geared property?

Generally, no. Under the “Single Acquirable Asset” rule, you can repair a broken window, but you cannot build a new room or a granny flat using borrowed money. Doing so breaches the Limited Recourse Borrowing Arrangement (LRBA) and forces the immediate sale of the property.

Can I buy a residential property by myself or with my spouse?”

No. Section 66 of the SISA prohibits acquiring assets from related parties. You generally cannot sell your own house to your SMSF. However, you can usually transfer Business Real Property (commercial property) from yourself to your SMSF at market value.

Why use a Legal Consolidated SMSF Holding Trust?

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.

The Exit Strategy: Unwinding the Bare Trust and transferring the SMSF geared asset

Once your SMSF pays off the loan, the “Limited Recourse” requirement ends. You no longer need the SMSF Custody Bare Trust structure.

At this point, talk with your accountant and financial planner about these two choices:

1. Keep the structure: You can leave the title in the name of the Custodian/Bare Trustee. The SMSF continues to receive rent and pay expenses beneficially.

2. Transfer title: You can transfer the legal title from the Custodian Company to the SMSF Trustee.

Does transferring the title from a Legal Consolidated Bare Geared Trust trigger Stamp Duty?

Generally, no. Because you paid the full stamp duty when the Bare Trust originally acquired the property (and provided the deed was correctly stamped at that time), the transfer to the SMSF is usually subject to only nominal stamping (e.g., $50–$200, depending on the State).

Our cover letter gives you instructions on how to handle this future event.

What is the legal name of a Custodian Bare Trust?

There is no definitive expression or name for a Custodian Bare Trust under the SIS Regulations.

While not defined in the SIS Act, a bare trust has the following (see Herdegen v FCT [1988] FCA 419):

• the trustee holds property without any interest, other than that existing by reason of the office and the legal title as trustee; and
• the trustee has no discretion and no active duties, other than to convey the trust property on demand to the beneficiary or beneficiaries or as directed by them.

Other names for an SMSF Property Trust

An SMSF Custodian Bare Trust is also commonly known by other names, such as:

• SMSF Bare Trust Deed

• SMSF Custodian Trust

• SMSF Property Trust

• Limited Recourse Borrowing Arrangement (LRBA) Trust

• Holding Trust

• Custodian Deed

• Bare Trust Declaration

• Debt Instalment Trust

• Instalment Warrant Trust

• SMSF Security Trust

Can I do the opposite: can my SMSF lend money?

So instead of borrowing money, your SMSF want to lend out money. For example, the SMSF has cash and wants to earn a return by lending it to someone. You can do that here.