How does the NAB Super Lever work in an SMSF?

The NAB Super Lever is a margin lending facility that constitutes a limited recourse borrowing  arrangement (LRBA), specifically designed for self-managed super funds (SMSFs) to facilitate the acquisition of shares, exchange traded funds (ETFs), and managed funds.

NAB reserves the right to initiate margin calls should the value of the secured assets decline below a predetermined threshold. The NAB Super Lever product requires:

• a cash contribution
• applies a loan to value ratio (LVR) to each loan
• recourse is limited to the asset acquired
• NAB holds the asset as security over the loan
• the SMSF cannot lodge additional security to meet a margin call
• a guarantor can lodge additional security to meet a margin call
• the loan cannot be increased

Conventional margin loans are not permitted within an SMSF, as they typically involve lines of credit supported by existing assets, with new equities acquired via the loan and charges applied over both existing and newly purchased assets.

The following is not product advice as we do not and cannot recommend a financial product. However, we provide a very broad guide in relation to how the borrowing rules under SIS operate with NAB Super Lever.

How NAB Super Lever aligns with SIS

NAB Super Lever	Alignment with SIS
Investment choices – Approved list of shares, ETFs and managed funds.	Investments are allowed under SIS.
Limited recourse loan provided by NAB.	Recourse against the SMSF is limited to the single acquirable asset.
A separate loan contract for each single acquirable asset (or collective asset).	An LRBA relates to a single acquirable asset (or collective asset such as a parcel of BHP shares).
Security trustee is NMS Nominees Pty Ltd (NAB entity) and all investments will be registered as: NMS Nominees Pty Ltd <SMSF trustee ATF XYZ Superannuation Fund> The security trustee holds title to the assets and is responsible for the execution of all investment transactions and ownership will be transferred when the loan is fully extinguished and the SMSF request title to it.	The legal title to the asset is held by the trustee under a trust arrangement on behalf of the SMSF and on repayment of the loan the SMSF can request legal title to the asset.
Cash advances are prohibited from the loan facility.	Drawdowns from a LRBA are not permitted unless used to pay loan establishment costs or stamp duty, maintain or repair the asset but cannot be used to improve the asset.
Distributions, dividends and other income flowing directly from the asset can be transferred to the fund bank account or offset against the loan capital or even used to reinvest but cannot be added to the original collection of shares or other equities subject to a loan.	The SMSF is the beneficial owner of the equities and therefore income and tax credits arising from those equities are dealt with by the fund.
NAB secures the loan by putting a charge over the single acquirable asset. The total security value of the loan has to exceed the balance of the loan and can include the asset plus personal guarantees.	A charge over the single acquirable asset is allowed but not over any other fund assets.
NAB’s facility terms document defines a single acquirable asset in accordance with SIS sect 67A. Replacement assets must be on the approved NAB list and if not, the loan may need to be repaid or the asset sold.	SIS sect 67B sets out what a replacement asset can be, and the replacement asset is a single acquirable asset. There are limited circumstances to replace another asset e.g. replacement occurs due to a takeover, merger, demerger or restructure of a company.
The LVR or SMSF gearing level determines how much the fund can borrow. It is calculated based on the initial cash contribution made by the fund and personal guarantees provided and other financial details of the fund and its members. The LVR applies to each loan and the related investment and not to the total margin lending facility and portfolio.	The LVR is not prescribed under SIS. An SMSF transactions must be made at arm’s length (the fund cannot be worse off) and the tax act also provides that non-arm’s length income (NALI) or expenses (NALE) must not result in the fund earning more income than it otherwise would.  NAB is an independent third party offering the Super Lever product to the public and therefore the LVR and other terms and conditions of the loan agreement would be considered as being arm’s length transactions.
Margin calls can be made to reduce the gearing level when the current LVR is equal to or greater than the margin call LVR. Additional personal guarantees can be lodged with NAB to satisfy a margin call or cash from the SMSF. The SMSF cannot put a charge over any of the other fund assets to reduce the gearing level.	When an SMSF pays cash, it is merely paying down the loan and not putting a charge over other assets of the fund.  Additional security provided from a personal guarantee is held separately to SMSF assets.
Personal guarantees can be made which can include cash lodged by the guarantor with NAB in their personal name or with acceptable securities The security from a guarantor is only accessed after the financed asset has been sold and a debt still remains.	Personal guarantees by related parties are allowed under SIS but are limited to the rights relating to the acquirable asset.  Guarantees do not give ownership rights or beneficial interest in the asset. The security must not breach the sole purpose test. If the guarantor makes a payment to the lender, it could be deemed to be a contribution if the SMSF acquires title to the asset but there is no contribution if the lender exercises the guarantee to pay for a loan shortfall after disposal of the asset.
NAB allow the original loan to be refinanced after the original loan is extinguished by proceeds from the new loan agreement.	SIS allows a loan to be refinanced provided the new loan is used to payout the balance of the original loan including accrued interest. The new loan can also be used to pay for loan establishment costs in relation to the new loan.

 Investing into NAB Super Lever should only be considered after consultation with your licensed financial advisor and after reading the product disclosure statement and other associated documents.