A senior SMSF executive has confirmed an asset acquired under a limited recourse borrowing arrangement (LRBA) can continue to be held in the associated bare trust once the loan has been extinguished, but certain conditions need to be observed when deciding to take this course of action.
“There is no problem with keeping the asset in the name of the bare trustee when the LRBA finishes, but, [and] here’s a big but, the asset is still subject to the conditions under section 67A and B [of the Superannuation Industry (Supervision) (SIS) Act],” ASF Audits head of technical Shelley Banton told attendees of a practitioner webinar she held recently.
“What that means is the asset must continue to remain that single acquirable asset and can’t be changed.
“So if the trustees want to [for example] build a property on a vacant block [acquired using an LRBA], they have to go to the trouble [of changing] the title back from the bare trustee to the self-managed super fund trustee.”
Banton took the opportunity to highlight other areas of section 67 of the SIS Act with which trustees are required to comply relating to having a charge over an asset purchased using an LRBA.
“[There can be] no other charge over the property apart from that LRBA itself,” she said.
She pointed out this condition can be easily breached in situations where the LRBA is provided by a related party.
“PCG [Practical Compliance Guideline] 2016/5 says that the related party has to have a registered mortgage over the property, but it can go belly up real quick when the member borrows money personally and then lends the money to the fund in a related-party LRBA, but the member gives the bank security over the property in the fund for their personal borrowing,” she noted.
“The result is you’ve got two mortgages over the property, which blows that LRBA up and breaches section 67.”
