There are some situations involving property where more than one title can be included on a single limited recourse borrowing arrangement (LRBA), providing an exception to the gearing rules detailed in the Superannuation Industry (Supervision) (SIS) Act, a leading industry executive has said.
ASF Audits head of technical Shelley Banton acknowledged sections 67A and 67B of the SIS Act stipulate the circumstances where an SMSF can use gearing under an LRBA.
“So firstly [an SMSF] can only acquire a single asset with the borrowed amount, which means for property there’s one property, one title [and] one LRBA. Where there are multiple property titles, they’ve all got to have a separate borrowing agreement,” Banton told attendees of a recent webinar ASF Audits hosted.
However, she pointed out ATO Self Managed Superannuation Funds Ruling 2012/1 provides an exception to the aforementioned legislative parameters.
“That [ruling] says where there is a unified physical object, such as a fixture attached over more than one title that is permanent and can’t be removed and the law requires those assets to be sold together, then you can have more than one title on an LRBA,” she explained.
According to Banton, an example of where this might occur is where a factory complex has been built across three land titles, but noted certain characteristics of the building must be present.
“Now [if] the factory adds value as a whole [and if] it’s a permanent structure, then [the land and the fixture can be acquired] under a single LRBA,” she said.
“But if the factory was derelict, wasn’t being used and it didn’t add any value to the property, then [the real estate in question] would have to be acquired under three separate LRBAs.
“So [there can be] very different treatment [for a property purchase using gearing] depending on the circumstances.”
