How Your SMSF Can Borrow to Buy Shares (Legally)
- Chris Abbott
- 6 days ago
- 2 min read
Hi, it’s Grant Abbott, your SMSF guru.
Most people think of borrowing inside a self-managed super fund (SMSF) as something you’d only do for property. But did you know you can also use a Limited Recourse Borrowing Arrangement (LRBA) to acquire listed shares? Done properly, this strategy can be a powerful way to grow your super wealth while keeping everything within the Australian Taxation Office (ATO) guidelines.
🔎 What Is a Limited Recourse Borrowing Arrangement (LRBA)?
An LRBA allows an SMSF to borrow money to acquire an asset — usually property, but also shares. The key feature is that if something goes wrong, the lender’s rights are limited to the asset itself (hence “limited recourse”).
This means your other SMSF assets remain protected.
🏦 Where Can the Loan Come From?
It’s almost impossible to walk into a bank and say:
“Hi, I’d like to borrow in my SMSF to buy shares.”
But here’s the smarter way:
Offset Account / Equity – If you’ve got cash parked in an offset account, it can be used to fund the loan.
Bucket Company – Many business owners have a company with retained earnings sitting idle. This can become the “lender” to your SMSF.
Family Trust – A family trust with surplus funds can also act as lender.
All of these can be structured legally under an LRBA.
📈 What Shares Can Be Acquired?
✅ Listed shares (on the ASX, for example)
❌ Unlisted shares (not allowed)
The shares must also be acquired in bulk of the same type (e.g., 10,000 ordinary shares in a company).
📜 The Rules You Must Follow (ATO PCG 2016/5)
The ATO has strict guidelines for related-party LRBAs, set out in Practical Compliance Guideline (PCG) 2016/5:
Loan term: Max 7 years
Loan-to-value ratio (LVR): 50%
Interest rate: Currently around 9%
Must be on arm’s length terms
Get this wrong, and you could breach superannuation laws or trigger heavy penalties.
💡 Why Use This Strategy?
Build long-term wealth inside your SMSF
Take advantage of the concessional tax environment (15% tax on earnings, 0% in pension phase)
Maintain flexibility by funding the loan through entities you already control
Protect other SMSF assets through the “limited recourse” nature of the loan
⚠️ A Word of Caution
This strategy is powerful — but complex. It requires correct structuring, documentation, and compliance with ATO guidelines. It’s not something to DIY.
✅ Final Thoughts
Borrowing inside an SMSF to buy shares isn’t for everyone — but for the right fund, with the right structure, it can be a game-changer.
If you’re serious about using an LRBA for shares, contact me.
I’ll guide you through the rules, the structure, and the strategy to ensure you do it right.
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