
ATO Warning: Non-ADI Offset Accounts May Breach LRBA Rules
ATO Clarifies Offset Accounts in SMSF Borrowing Arrangements
The ATO has updated its guidance on how offset accounts are treated within limited recourse borrowing arrangements (LRBAs) - and the key distinction lies in who provides the loan.
If you’re using an authorised deposit-taking institution (ADI) - essentially a “real bank” - the ATO has given the all-clear. Offset accounts with ADIs don’t breach SIS Act provisions. They’re treated as reducing the interest-bearing loan balance and don’t count as additional borrowings or added charges over the SMSF’s assets.
Genuine Offset Accounts with ADIs Are Safe
Here’s what you need to know:
Offset accounts linked to loans from ADIs are recognised as bank deposits.
They don’t trigger compliance concerns or SIS Act breaches.
The ATO treats them as standard features that reduce the loan’s interest, not as separate fund assets or liabilities.
✅ In short - if the lender is an ADI, you’re likely in the clear.
Non-ADI Offset Accounts Are a Grey Area
Things get murkier when the offset account is offered by a non-ADI lender.
According to the ATO:
Offset accounts from non-ADIs are not considered bank deposits.
They may appear similar to traditional offset accounts but lack regulatory certainty.
Without formal product rulings or legal clarity, these arrangements could risk breaching the SIS Act.
In other words - tread carefully.
The SMSF Association Urges Caution
Echoing the ATO’s position, the SMSF Association is advising practitioners and trustees to proceed only with solid documentation.
Their key message:
Do not proceed without formal evidence that your offset account complies with SIS legislation.
That means obtaining:
A private binding ruling from the ATO
Or a qualified legal opinion confirming compliance
Without that, you could expose your fund - and yourself - to unnecessary compliance risk.
What SMSF Trustees Should Do
Until clearer guidance is issued, trustees and advisers should follow these best practices:
Stick with ADIs for any offset-related LRBA structures
Document everything - especially if dealing with a non-ADI lender
Avoid relying on surface-level features that “seem similar” to bank products
Seek legal advice or ATO rulings if in doubt
Offset accounts can be helpful, but only when structured correctly.
Final Thoughts
If your SMSF is using or considering an LRBA with a non-ADI lender, it’s worth reviewing your structure now — before any compliance concerns arise. The ATO’s message is clear: offset accounts from non-ADIs may carry hidden risks.
✅ Need Help Reviewing Your LRBA?
When it comes to offset accounts and LRBA compliance, it pays to be certain. If you’d like a second opinion or simply want peace of mind, we’re happy to help - no outsourcing, just straight answers.