Single Acquirable Asset: SMSF Property Investment Rules

When an SMSF uses a Limited Recourse Borrowing Arrangement (LRBA) to acquire property, superannuation law requires the borrowing to be used to acquire a single identifiable asset (often called the “single acquirable asset”).

Understanding what "single acquirable asset" means in practice and what trustees may and may not do once borrowing has been used, is critical because getting it wrong can put the fund’s complying status at risk.

What is a single acquirable asset?

What is “single acquirable asset”

A single acquirable asset is the specific asset (or legally inseparable collection of assets) purchased under the Limited Recourse Borrowing Arrangement (LRBA) and held in a separate holding trust (bare trust) until the borrowing is repaid.

In simple cases this is one property on one title. In other cases, two items that cannot practically or legally be separated at acquisition (for example, a particular apartment and its legally-attached car space where the two cannot be sold separately) may be treated as a single asset for LRBA purposes. The key point is that the asset(s) acquired under the LRBA must form one identifiable economic unit for the life of that borrowing arrangement.

What trustees can and can’t do

Borrowed funds under an LRBA must be applied to acquire the single acquirable asset and to meet ordinary acquisition costs associated with that asset under the structure. Trustees may use fund cash (not borrowed money) for ordinary repairs, maintenance and other permitted expenses.

Where trustees use fund cash to make improvements, they must take care: significant works that change the fundamental character of the asset or that create separable assets (for example, subdividing land and creating new titles or constructing multiple separate dwellings where separate sale titles will be created) can conflict with the LRBA rules and the single-acquirable-asset requirement.

Development & “Fundamental Change”

Development activity that materially alters the nature of the asset acquired under an LRBA, such as subdividing lots, creating multiple saleable titles, or building multiple separate dwellings where the original single asset becomes several assets, raises a high risk of breaching the LRBA rules.

Small-scale, routine improvements or repairs that do not change the asset’s legal and/or commercial character are ordinarily acceptable when paid for from the SMSF’s own funds, but large-scale development or works financed by the borrowing that alter the identity of the asset are not consistent with the purpose of the LRBA.

Multiple Titles

Where a property sits on more than one title, trustees must be able to demonstrate that the titles are so interconnected that they cannot be treated as separable assets for LRBA purposes. That is a fact-specific analysis and generally requires legal/valuation input. If the titles can be separated in law or in practice, lenders and regulators may view them as multiple assets, necessitating a separate borrowing arrangement (or different structuring) for each asset.

Lender Practice

An LRBA protects other SMSF assets from lender recourse by design, but in commercial practice lenders usually assess serviceability, loan-to-value and security carefully. Many lenders will require trustee or director guarantees, and loan terms (including permitted works and capitalisation of costs) may impose additional constraints.

Trustees should not assume that an LRBA legally permits development that would otherwise change the asset’s character; lender consent and legal advice are needed before significant works commence.

Compliance

Trustees must avoid using SMSF property for present-day personal use, must avoid acquiring residential property from related parties in circumstances that breach the rules, and must ensure investments satisfy the sole purpose test. Attempting to use borrowed funds to create multiple saleable assets, or to run a trading/development business from the SMSF, are particular red flags that can result in a fund becoming non-complying and losing concessional tax treatment.

Summary

If trustees plan any substantial redevelopment, subdivision or works that could change the legal or economic identity of the LRBA asset, they should seek specialist advice — typically legal, tax and valuation advice — before proceeding. An adviser can review the trust deed, loan documentation, land titles and local planning rules, and advise on whether the proposed activity can be undertaken without jeopardising the LRBA or the fund’s complying status.

---

UNDERSTAND THE SMSF JOURNEY

Every SMSF journey is unique. Connect with our team to explore SMSF considerations and understand how different professionals may fit into the process.

EXPLORE YOUR SMSF OPTIONS >

(GENERAL INFORMATION ONLY)

---

DISCLAIMER:  This article is provided for general information and educational purposes only. It does not constitute financial, legal, tax, investment, or other professional advice and has been prepared without taking into account your personal objectives, financial situation, or needs. This article may include perspectives from industry contributors. Contributor participation does not imply endorsement, recommendation, or preferred referral status. While reasonable care has been taken in preparing this content, no representation or warranty is made as to its accuracy, completeness, or currency. SMSF Intelligence does not accept liability for any loss or damage arising from reliance on this information or any linked materials. SMSF Intelligence does not provide financial, legal, or tax advice. Before making any decisions, you should consider the appropriateness of the information in light of your circumstances and seek advice from a suitably qualified and licensed professional.