Self Managed Superannuation Fund Borrowing

As a Trustee of a Self Managed Superannuation Fund (SMSF) you have many complex decisions to make in steering your fund through the maze of legislative requirements confronting you. The job is made more difficult when there is ambiguity within the industry as to when you are allowed to borrow money for the super fund to acquire and maintain assets.

On 14 September 2011 the Australian Tax Office released a Draft Ruling, SMSFR 2011/D1, clearing up some previous ambiguities with the borrowing powers available under the legislation.

There had previously been confusion within the industry as to what limited recourse borrowing arrangements (LRBA) could be entered into by SMSF’s, particularly when the SMSF was borrowing money to complete works on assets already owned by the fund.

Sections 67A and 67B of the Superannuation Industry (Supervision) Act 1993 (SISA) deal with SMSF borrowings, specifically s 67A states that a Trustee of an SMSF may borrow money for an existing asset owned by the fund only if that money is directed to the repair or maintenance of the asset, not the improvement of the asset. Under the ATO draft ruling this position has been clarified to now mean that:

“To determine if an asset has been repaired or maintained or whether it has been improved, reference is made to the asset’s qualities and characteristics at the time when the asset is acquired under the LRBA”

More than this, the decision has provided definitions as to what “repair”, “maintenance” and “improvements” mean under the Act.

This draft decision means elringtons is now ideally placed to provide advice as to a fund’s proposed borrowings giving our clients peace of mind knowing their decisions complies with the SISA. Before you enter into any borrowing schemes for your Self Managed Superannuation Scheme contact our Business Services team to fully understand your duties and obligations.