By admin | 1 July, 2015

SMSF BORROWING – NOT AXED IN THE BUDGET

The fact that SMSF borrowing (LRBA’s) did not get axed in the budget should instil some confidence in the future of the strategy for trustees. Now more than ever perhaps some trustees that have already invested in one LRBA might feel bold enough to venture into a further LRBA. However, it seems that there is some confusion and differing opinions regarding the possibility of a single bare trustee acting as trustee of multiple bare trusts holding assets acquired by SMSFs under LRBAs.

Can different assets be held by the same trustee, under separate trusts, or may a trustee act only as trustee for one LRBA?

There is no binding guidance from either the superannuation legislation or the Australian Taxation Office in existence so that would suggest that we could adopt common law. It is not an uncommon for one trustee to act as trustee for a number of separate trusts.

Discussions overheard at the pub and on the golf course suggest that a default by the SMSF under one SMSF borrowing will provide the lender recourse to all assets held in the various LRBA’s under the trusteeship of the same bare trustee.

The real question is not whether a single trustee may act as trustee for multiple trusts, but whether it should and further perhaps it is not necessarily even why it should but whether the lender’s credit policies will allow it. Each lender will have different credit policies and they may take a more conservative stance. Anyone who has been through the LRBA set up process in the past will know that when dealing with the lenders the law is the minimum and that their credit policies often go further and that we must obey the golden rules of the lenders.

* The golden rules that apply:

the lender has the gold;
the lender makes the rules;
all the lenders have different rules; and
the lenders often change rules.

If you are considering entering into a LRBA for your SMSF you might like to review the list of some of the common mistakes made, avoiding them will make life easier

Properties purchased with or on multiple titles may need a separate bare trust for each property or title e.g. inner city apartments with a unit and car park on separate titles may required a bare trust for each title if they can be sold independently.
Borrowings cannot be used to improve or change an existing property held within the super fund. Borrowings must only be obtained to acquire a new single asset.
Often sign a contract to purchase then seek advice.
Execute the contract in the wrong name, this has the potential for additional stamp duty.