Clarification by the ATO relating to SMSF
trustees has been welcomed by those in the industry.
In the past there has been a grey area with regard to trustees of self-managed superannuation
funds who plan to borrow.
Trustees have been unsure whether trusts set up as part of SMSF borrowing arrangements might breach the rule that prohibits investments in "in-house assets” if the borrowing had not yet occurred, and the asset was not yet held by the related trust; or the related trust continued to hold legal title to the asset after the borrowing had been repaid in full.
The newly released draft legislative instrument clarifies that, even under these circumstances an investment by an SMSF in a related trust in compliance with the borrowing provisions of the act will be exempt from being an "in-house asset".
SMSF Professional’s Association of Australia Graeme Colley said it was encouraging to see the regulator take such practical approach.
"This legislative instrument will go a long way to resolving some of the technical issues that were impeding the practical implementation of the law around LBRAs.
“This is consistent with the Government's policy of reducing red tape to achieve the intended outcome of legislation."
The change would overcome the problems of double stamp duty payments in some states, said Colley, while also eliminating the need for paperwork associated with the transfer of the property once the loan had been paid out.
The need to retain a small second mortgage over the property that is gradually paid off in small amounts to meet the strict technical requirements of the LBRA will also no longer be necessary, he said.
The instrument will apply retrospectively, from 24 September 2007 – the date from which SMSF’s became able to borrow directly under Limited Recourse Borrowing Arrangements (LRBAs).