Business News

New LRBA ruling a cost saving for trustees

The proposed amendment to the limited recourse borrowing arrangement (LRBA) rules could end up saving some trustees money, according to an expert superannuation lawyer.

The Australian Taxation Office (ATO) draft determination issued on 11 December last year set out to define how an asset should be treated once the debt from an LRBA had been extinguished.

In particular, the draft determination, “Self Managed Superannuation Funds (Limited Recourse Borrowing Arrangements – In-house Asset Exclusion) Determination”, stipulated an asset acquired under an LRBA could remain in the holding trust and would not be considered an in-house asset for Superannuation Industry (Supervision) Act purposes.

Under the current legislation, an SMSF can only hold in-house assets up to 5 per cent of the total value of the assets of the fund.

“While the determination has not yet been finalised, if implemented as proposed, it is likely to mean that the imperative to promptly transfer the title of the acquired asset from the holding trustee to the fund trustee is removed,” Townsends Business & Corporate Lawyers principal Peter Townsend said.

“In theory, the property could remain in the name of the holding trustee until it is ready to be eventually sold to a third party.

“This is likely to be music to the ears of trustees who don’t want to incur the expense of the transfer of the asset to the fund.”

But while there might be cost savings from not having to transfer ownership of the asset acquired via an LRBA, the decision to leave it in the holding trust might incur other expenses, Townsend warned.

“One thing to keep in mind though is the ongoing cost of maintaining the holding trust and the corporate holding trustee,” he said.

“ASIC’s annual fee will still be payable until the asset is transferred to the fund and the holding trust is unwound.

“It may be necessary to prepare financial statements each year for the holding trust and/or the holding trustee as well.”

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