Thursday, July 23, 2009

Instalment Warrants, SMSF borrowing, what’s happening

Christopher Balmford, MD

I reckon it would be good to get a discussion going in the 'Cleardocs community' — that is among: Cleardocs, Maddocks, and the people who use Cleardocs — about 'instalment warrant arrangements' and SMSF borrowing: who is doing what and why? … the banks, … the regulators, … SMSF members, and their advisors.

We thought we'd kick things off with our first blog.

You can read what we already know about instalment warrant arrangements for SMSFs in this article — which has a link to an interactive graphic overview about how instalment warrant arrangements work: the asset's journey to the trustees, the documents involved, and some of the emerging issues

Rather than repeat that article as a blog, here are some questions to trigger discussion:

  • What are SMSF trustees and their advisers experiencing and wondering?

  • Do you have any information from the regulators that you can "share with the group"?

  • How are the banks going with instalment warrants? … An accountant who uses Cleardocs asked us for an instalment warrant contact at a bank — he said dealing with his client's bank on instalment warrants was like being in a "vortex".

Also, what do you think about these thoughts?

  1. Some banks want personal guarantees (though they are calling them indemnities) from SMSF trustee(s) (or members) … which could be seen to be somewhat counter to the 'limited recourse' nature of the loan.

  2. What the ATO's views will be about instalment warrant arrangements, generally — and in particular, the implications of the requirement that the loan be 'commercial'. Also, if SMSF trustee(s) of a fund with members who are all in their 50s borrow to buy property over 30 years, then are they really doing so to fund their retirement? Some banks are allowing 30 year loans. How might the ATO respond to that?

  3. The best sort of structures for instalment warrant arrangements:

  • Who should be the trustee(s) of the Custodian Trust (also known as a 'Bare Trust')?

  • Who should be the lender?

  • Are SMSF trustee(s) put-off by the thought of extra entities? Or do they like to be able to see who owns what — rather than trying to think of themselves as 'in the capacity of this' and 'in the capacity of that'?

It's early days for SMSF borrowing and instalment warrant arrangements. Some things are becoming clearer, some issues are emerging.

We look forward to the discussion. Feel free to comment in the box below, or to email us at

Instalment warrant arrangements article with interactive graphic overview

Other topics? Feel free to suggest other topics on which you'd like the Cleardocs community to blog.


  1. We have a company with 2 directors as the trustee of our SMSF with 2 members.

    Do I need to setup a second trustee company as the custodian of the bare trust?

    Can the directors be the trustee of the bare trust without the second trustee company?

  2. Hi

    Most lenders require the custodian (that is the trustee of the bare trust) to be a company. Check with your lender.

    It is legally invalid for one company to be both the trustee of the SMSF and the trustee of the bare trust. If the company held both roles, then it would be holding the asset on trust for itself, which is invalid.

    The information about needing 2 companies is in our blog on May 2010 "SMSF Borrowing with Cleardocs – the process".

    By the way, we can't give you any specific advice. This is general information only. You need to get your own advice about your situation.


  3. Well, we must expect the unexpected in the field of finance and business economy... and the truth hurts that the most effective strategies today might be out-of-line tomorrow.