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Advisers overlooking LRBA requirements, order

Advisers need more education on the precise process of limited recourse borrowing arrangements (LRBA) in order to avoid errors, delays and penalties.

Cavendish Superannuation head of education and market development Tim Miller said as SMSF trustees were prone to making mistakes, it was vital those advising on the subject matter needed a clear understanding of the requirements.

“The main issue that I’m coming across and regularly discussing with advisers is getting the rules right, so ensuring that people understand the process around LRBAs and the order that they need to undertake transactions in,” Miller told selfmanagedsuper.

“It’s quite often linked back to the Australian Taxation Office and the issues it raises in the taxpayer alert, [such as] making sure the loan is in the name of the SMSF, that the security trust or the holding trust is in the name of the separate trusts, not the name of the super fund; those sorts of elements.”

He said while they were simple processes, advisers still struggled with the concept.

“What I’ve found that those going through it for maybe the first time or haven’t done it for a while might ask for some hand-holding because they’re not as experienced in the transactions or in transacting with property,” he said.

“Once they have those guidelines in how to operate, most people have comfort.

“I certainly gauge from talking with financial advisers in this area that they want to make sure that clients are doing it the right way and not try to cut corners when it comes to buying property in a super fund.”

Despite the need for further education and awareness of the LRBA rules, he said he did not believe more mistakes were occurring today.

“There are always mistakes being made and most of the time in the majority of cases it’s inadvertent, just an oversight or just not having all of the information,” he said.

“If anything else, more people are becoming diligent because there’s more focus [on SMSFs] and I think people are taking far more care than probably in the earlier days.”

He said SMSF trustees who fully understood their obligations went through the correct advice channels and generally had no problems with the LRBA process.

“Property is very attractive to some people and I’m a strong supporter for anyone engaging in an SMSF from a trustee point of view to seek some form of advice or support in its management and also for the investment as well,” he said.

“They should be seeking some form of professional advice prior to entering into any LRBA.”

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