Business News

ATO provides LRBA contract clarity

The Australian Taxation Office (ATO) has clarified its considerations for correct limited recourse borrowing arrangement (LRBA) contracts in regard to use by SMSFs.

Concerns have existed over which party must sign the contractual arrangement for the LRBA to be properly executed.

However, Heffron SMSF Solutions technical services manager Leigh Mansell revealed to delegates at the Heffron Advanced SMSF Training Day in Sydney last week that the ATO made clear its position on the subject via the National Tax Liaison Group (NTLG).

“The NTLG has come out and said, a couple of times in the last six to nine months, we have taken a more pragmatic view, and what they have basically said is it doesn’t really matter who’s name it is, it’s not critical,” Mansell said.

“The critical thing is that the title of that property goes directly from the lender to the custodian, it doesn’t go into the name of the funder.”

Despite this development, she warned practitioners that while the ATO’s attitude on the subject might put their clients in the clear from a Superannuation Industry (Supervision) Act perspective, stamp duty laws in some states might still cause some unwanted additional costs if the proper name was not on the LRBA contract.

Furthermore, she pointed out the resolutions of the NTLG were only non-binding opinions and not legislation.

She recommended getting the right name on the contract was always most prudent and as such suggested amending the necessary documents where possible.

In order to do so, she encouraged advisers to ask their clients to approach the other party, the vendor, and ask if the original contract could be rescinded and a new one drawn up with identical details, but with the correct names on it.

LRBA documentation was still a major concern for the regulator, she said.

“I spoke to my contact at the ATO a couple of weeks back and asked him what he was seeing going wrong on borrowing agreements. He said nothing, not a thing, apart from documentation. That’s going wrong and that’s going wrong all the time,” she said.

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