The use of a major bank as the lending institution for a limited recourse borrowing arrangement (LRBA) is no guarantee everything will be trouble free with the strategy, according to a specialist auditor servicing the space.
“Please don’t just assume that because there is a bank involved that it’s all okay. That may be more so these days than a couple of years ago, but you may still get a situation where the client may not have quite informed the bank correctly of the structure and there might be some information that is missing,” Super Sphere director Belinda Aisbett told delegates at last week’s 2013 SMSF Professionals’ Association of Australia State Technical Conference.
Aisbett pointed out an example of that was the fact many client files she saw were missing the guarantee from the bank stating the loan to the SMSF was limited in its recourse.
“So don’t just think ‘I’ve got this particular bank, they should know what they’re doing’ or ‘I’ve got this lawyer involved so it’s all going to be okay’,” she said.
She recommended auditors and advisers alike should make sure all of the appropriate paperwork was in place for their own professional peace of mind.
In regard to LRBAs, she said other fundamental issues were continuing to be problematic.
“Where the loan has been repaid, the biggest issue talked about is double stamp duty, but what we’re seeing is clients are forgetting they need to transfer the property from the custodian to the super fund,” she said.
“If the client is actually repaying their debt, the auditor needs to ensure the client actually tidies up the structure, finishes it off, closes it down, and makes sure everything is where it is supposed to be.”
An additional area of worry was associated with paperwork when LRBAs were being refinanced, she said.
“We’re finding when people are refinancing a debt, whether they’re changing bank or staying with the same bank, guarantees aren’t being refreshed,” she said.
“So you might have a perfectly compliant structure, but then when you’ve got a guarantee that is not limited in recourse, you do unfortunately trip up.”
