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What is Limited Recourse Borrowing Arrangement (LRBA) in an SMSF, and why do I need it?

A Limited Recourse Borrowing Arrangement (LRBA) in a Self-Managed Superannuation Fund (SMSF) is a financial structure that enables the SMSF to borrow funds to acquire assets, typically property. The primary motivation behind using an LRBA in your SMSF is to expand your investment portfolio and accumulate wealth for retirement. Through LRBA, your SMSF can diversify its investments, particularly into property, which may be otherwise unaffordable without borrowed funds. This strategy potentially offers rental income and capital growth as part of your retirement savings. Additionally, it can provide tax advantages, although it comes with complexities and risks. Assets acquired through LRBA are held in a separate Bare Trust structure, ensuring compliance with superannuation laws and protecting other SMSF assets from legal claims. However, navigating this strategy requires careful consideration of loan terms, interest rates, and compliance rules, making it crucial to seek guidance from SMSF and LRBA experts to use LRBA effectively and within legal boundaries.