Reprieve for limited recourse borrowing arrangments
The ATO has become aware of a number of issues regarding the application of the in-house asset exemption provided by S.71(8) of the SIS Act to an investment in a related trust held by an SMSF as a required part of a limited recourse borrowing arrangement (LRBA).
The in house asset exemption does not exclude an SMSFs investment in a related trust from being an in-house asset of the SMSF at the following point in time:
- at the beginning of an LRBA where a borrowing refereed to in S.71(8)b has not yet begun, or the related trust does not yet hole the acquirable asset; and
- Where the asset continues to be held in the related trust after the borrowing referred to in S.71(8)b has been repaid.
To provide certainty for SMSF trustees in such circumstances, the ATO has drafted a legislative instrument under S.71(1)f of the SIS act, which will potentially exclude an investment in a related trust held by an SMSF as a required part of an LRBA form been an in-house asset of the SMFS in the periods mentioned above.
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