NEWS – Are you aware of the Limited Recourse Borrowing Determination in April 2014 for Property etc in SMSF?

NEWS – Are you aware of the Limited Recourse Borrowing Determination in April 2014 for Property etc in SMSF?

Limited Recourse Borrowing Determination

In June the ATO announced confirmation of an April Determination 2014 Legislative instrument, drawing people’s attention to Limited Recourse Borrowing for Property etc in self-managed super funds (SMSF) particularly the in-house asset exception where a related party trust is involved.

From part of the SMSF News – Edition 30

Limited recourse borrowing arrangements

The Self-Managed Superannuation Funds (Limited Recourse Borrowing Arrangements – In-house Asset Exclusion) Determination 2014 Legislative instrument was registered on 10 April 2014.

The instrument addresses concerns raised by industry about the application of the in-house asset exemption provided by subsection 71(8) of the Superannuation Industry (Supervision) Act 1993 (SISA) to an investment in a related trust held by an SMSF as a required part of a limited recourse borrowing arrangement (LRBA).

Prior to this legislative instrument the in-house asset exemption did not apply to exclude an SMSF’s investment in the related trust from being an in-house asset of the SMSF at particular times, including:

  • At the beginning of an LRBA where a borrowing referred to in paragraph 71(8)(b) has not yet begun, such a borrowing has not yet begun and the related trust does not yet hold the acquirable asset; and
  • Where the asset continues to be held in the related trust after the borrowing referred to in paragraph 71(8)(b) has been repaid.

To provide certainty for SMSF trustees, a legislative instrument has been registered. It provides an exception to the definition of an ‘in-house asset’ in the circumstances described above.

The instrument is taken to have commenced on 24 September 2007. This aligns with the date of effect of the introduction of provisions in the SISA that allow trustees of regulated super funds to enter into LRBAs. This ensures SMSFs that entered into LRBAs prior to the making of this instrument are not disadvantaged as compared with SMSFs that enter into LRBAs after the making of this instrument.

The legislative instrument and explanatory statement are published on the Com law websiteExternal Link. You can also access them below.

Find out more

Download the Legislative InstrumentExternal Link

Download the Explanatory Statement

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