ATO clarifies borrowing issues around single acquirable asset for SMSFs

Property in self managed super SMSF superbenefit - ATO clarifies borrowing issues around single acquirable asset for SMSFs

Asset clarity in borrowing for SMSF

Confusion under borrowing issues has meant the Australian Tax Office has clarified what is meant by a ‘single acquirable asset’ and what constitutes repair or maintenance of an asset, according to the SMSF Professionals’ Association of Australia. The release of the Self Managed Superannuation Funds Ruling SMSFR 2012/1 by the Tax Commissioner has brought some clear-thinking to issues surrounding borrowing and single assets by self managed super funds, said Andrea Slattery, chief executive officer of the SMSF Professionals’ Association of Australia (SPAA). The ruling has clarified situations where there may be two separate assets at law but because they are inseparable then they will be treated as a single asset for limited recourse borrowing purposes. It has also distinguished between repairs as something that reinstates the function of the asset compared with an improvement that improves the asset. Amendments to the borrowing rules from 7 July 2010 restricted some arrangements that had evolved under the previous rules, but they still allowed a fund to borrow provided it was used to acquire a ‘single’ acquirable asset. “The issue that arose was around what constituted a single acquirable asset, and with this ruling it has clarified instances where there may be two separate assets at law but, for all practical purposes, are one asset,” she said. “The ruling also has distinguished between repairs and improvements to assets. It’s also good to see the Commissioner sever the link in the draft ruling between the SIS legislation and income tax ruling TR97/23 on whether particular costs for repairs are treated as capital and income.” Rachel Davis, Financial Standard Go to ARTICLE

Asset for SMSFs - ATO clarifies borrowing issues around single acquirable asset for SMSFs

Assets in SMSFs – Property

Welcoming the ATO’s clarification, SPAA chief executive Andrea Slattery said the ruling had clarified what was meant by a ‘single acquirable asset’ and what constitutes repair or maintenance of an asset. “The Tax Commissioner’s interpretation of these terms has provided a common sense and practical solution to legislation that could be read far more strictly,” she said. Slattery said the ruling would make life easier for both SMSF trustees and their advisers. “The purpose of the limited recourse borrowing arrangements is different to the income tax law, which is to restrict the use of the amount borrowed,” Slattery said. She said the examples provided by the ATO made it clear that the amount borrowed could be used to repair an asset, but where there was an improvement the cost had to be obtained from other sources such as the superannuation fund. Mike Taylor, Money Management Go to ARTICLE

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