LimitedRecourse BorrowingArrangements
PCLConference2023
Outline
Benefits
Legalprinciples
Specificissuesretransactionsinvolving relatedparties
Practicalguidancerebreaches
Benefits
Purchaseanassetthatwouldnototherwisebe affordable
Diversification
Taxrates
Contributions
Rent
GeneralProhibition
Section66(1)oftheSuperannuationIndustry (Supervision)Act1993(CthSISAct
regulatedsuperannuationfundmustnot:
(a)borrowmoney;or
(b)maintain
ConsequencesofBreach
Administrativepenalties
Otherpenalties
Rectificationdirections
Disqualificationorders
Criminalprosecutions
Windinguporders
Noticesofnon-compliance
Freezingorders
ExceptionsLimitedRecourseBorrowing LRBAs
Section67A-borrowingtoacquire,maintainor
Section67Bextendsexceptionunders67Ato replacementassetsforsingleacquirableassets
E.g.sharesinmergedcompany
RequirementsofLRBAs
Borrowedmoneymustbeappliedtoacquisition, maintenanceorrepairofsingleacquirableassetor refinanceofLRBAs67A(1)(a)
AcquirableassetmustbeheldontrustforSMSF trustees67A(1)(b)
SMSFtrusteeentitledtolegaltitlebymakingoneor morepaymentss67A(1)(c)
Rightsoflendersandotherpersonslimitedtorights relatingtoacquirableassetss67A(1)(d)(f)
Singleacquirableasset
Section67A(2)
thanmoneyandpropertyexcludedbySISRegulations
Inpractice,questionsarisewhetherparticularassetisa
e.g.industriallandcomprisingtwolotswithawarehouse acrossthem
SMSFRuling2012/1therearemultipleacquirableassets wheretherearenosignificantphysicalorlegalimpedimentsto dealingseparatelywiththeassets
NoobstacletoapplyingformultipleLRBAsinrelationtoa transactioninvolvingmultipleacquirableassets
Changestoassets
Alterationsoradditionstoacquirableassetsmay causeborrowertoacquireasecondacquirable asset,breachingthefirstrequirement
SMSFRuling2012/1ifalterationoraddition
E.g.subdivision
E.g.residentialdwellingconvertedintorestaurant
E.g.constructionoffarmhouseonagriculturalland
LRBAsmaynotbesuitableforcertaininvestments (e.g.vacantdevelopmentsite)
Maintenance/repairvimprovements
Repairs/maintenancerestorefunctionwithout changingcharacter
Improvementimprovetheconditionorfunction throughsubstantialalterationoradditionof substantialfeaturesorrights
Fundscannotbeusedtofundsubstantial developments
E.g.residential-pergola,secondbathroom
E.g.agricultural-newyards,bores,dams,shedsorfencing
Limitationofrights
Rightslimitedtorecoursetoacquirableasset LendertermsofLoanAgreementandMortgage/ Charge
GuarantortermsofGuarantee&Indemnityand
Property/baretrust
AcquirableassetheldontrustforSMSFtrusteeby thirdpartyproperty/baretrustee
Purpose:insulateotherassetsofSMSFagainst defaultclaims
Property/baretrusteegiveGuarantee&Indemnity
SecuredbyMortgageorChargeoveracquirable asset
LegaltitletransferredtoSMSFtrusteewhenloanis repaid