The Australian Taxation Office (“ATO”) has just published a legislative instrument under Section 71(1)(f) of the Superannuation Industry (Supervision) Act aimed at overcoming the risk of a Limited Recourse Borrowing Arrangement (“LRBA”) breaching the in-house assets rules in the SIS Act.
Generally a SMSF cannot have an interest in a related trust and must not have more than 5% of its funds invested in in-house assets. There was a risk that LRBA’s, which require the use of trust structure to hold assets on behalf of the SMSF would fall foul of these rules. Once the loan obtained under the LRBA was paid off there was also a risk that stamp duty would be payable on the transfer of the assets from the holding trust to the SMSF trustee and that if the transfer did not occur that would also result in a breach of the rules.
Thankfully the ATO has introduced the legislative instrument to help ensure these unintended risks do not occur and that SMSF’s entering into property structured LRBA arrangements do not fall foul of other parts of the SIS Act or the state stamp duty laws.
Importantly, the legislative instrument does not provide a blanket exception and it is still important to ensure any LRBA is structured in a way that complies with all the requirements of the SIS Act.
We are experienced in structuring LRBA arrangements and are happy to provide advice on how to structure them and ensure the rules are complied with.
Brendan Cockerill is a Business and Succession Lawyer at Dobinson Davey Clifford Simpson, 18 Kendall Lane, New Acton, Canberra ACT 2601 and can be contacted on (02) 6212 7600.