Gearing through a SMSF
Borrowing through a superannuation fund as a way of building wealth can be an attractive option for some trustees.
Legislative changes introduced in September 2007 allow self-managed superannuation funds (SMSF) to borrow under what is currently known as an instalment warrant or limited-recourse arrangement.
An instalment warrant allows a SMSF trustee to pay a small part of the cost to purchase an asset upfront, and borrow the rest. The asset is then held in trust for the life of the loan but the SMSF has the ‘beneficial interest’ in the asset.
So if, for example, the asset is shares in a company, the SMSF will receive the dividends during the course of the loan. Another popular use of instalment warrants is to purchase property.
A superannuation gearing strategy will not be suitable for everyone and the merits of the strategy should be examined on a case by case basis so it is essential that you speak with your ARW Chartered Accountant.