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16 September 2011

Has the ATO made limited recourse borrowing arrangements for self-managed superannuation funds more attractive?

On 14 September 2011 the ATO issued draft ruling SMSFR 2011/D1.

On 14 September 2011 the ATO issued draft ruling SMSFR 2011/D1.

The draft ruling contains some important clarifications of key concepts where there was quite some uncertainty, including:

  • that a “single acquirable asset” can include one building across multiple titles or multiple titles that must be sold together (for example a strata lot and its separately titled car park);
  • borrowed money can be used to maintain and repair an asset owned in a borrowing trust, but not to improve an asset;
  • money from the fund’s resources can be used to improve an asset owned in a borrowing trust, provided the work does not fundamentally change the nature of the asset;
  • when an asset owned in a borrowing trust is damaged (for example by flood or fire) it can be repaired, provided the work does not fundamentally change the nature of the asset.

There are still restrictions in the ATO’s view on the amount an asset owned in a borrowing trust can be improved before it becomes a fundamentally different asset. Subdivisions and new buildings are likely to be beyond what is allowed.

The draft ruling is very useful in making the ATO’s position on a number of fundamental areas clear. This opens the door for more practical solutions than had previously been the case and will make the structure more attractive in some situations.

For more information contact Scott Hay-Bartlem on 3231 2458 or Rebecca Liew on 3231 2567.

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This publication is for information only and is not legal advice. You should obtain advice that is specific to your circumstances and not rely on this publication as legal advice. If there are any issues you would like us to advise you on arising from this publication, please let us know.

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