The trustee of the SMSF ("the trustee") borrows money to acquire an asset. 2. The asset acquired (or any replacement asset) is held on trust so that the trustee acquires a beneficial interest in it. 3. The legal interest in the asset (or any replacement) is held by the trust as security for the borrowed money. 4. The trustee has the right to acquire legal ownership of the asset (or any replacement) by making one or more payments after acquiring the beneficial interest. 5. The borrowing is of a limited-recourse nature, noting particularly that any recourse that the lender has under the arrangement against the trustee must be limited to rights relating to the asset acquired (or any replacement). In other words, the lender is able to recover monies where there is a default on the borrowing by repossessing or disposing of the asset acquired (or any replacement), but cannot recover such monies through recourse to the SMSF's other assets. 6. The arrangement has one or more of the following features: (a) The interest rate for the borrowing is zero or less than a commercial rate, particularly where the lender is a related party; (b) The interest rate for the borrowing exceeds a commercial rate, particularly where the lender is a related party; (c) Interest on the borrowing is able to be capitalised; (d) A personal guarantee for the borrowing is given by a third party, particularly where the guarantee is given by a member or a related party of the SMSF; (e) The asset acquired (or any replacement) is one that a trustee is prohibited from acquiring under the SIS Act or any other law, or under the SMSF's governing rules (for example, acquiring residential property, which is not business real property, from a related party).
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