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Auditors still finding LRBAs problematic

A large portion of limited recourse borrowing arrangements (LRBA) within SMSFs are still not being executed properly, resulting in auditors having to file contravention reports about them, a leading specialist auditor has said.

“We still see numerous limited recourse borrowing arrangements come through the office that simply fail,” Super Sphere director Belinda Aisbett said at last week’s CPA Australia SMSF Conference and Expo in Melbourne.

“Then you have the issues of how do you fix it, is it fixable, how much time do you have to fix it.

“And where clients have these contraventions, it’s pretty rare to have an LRBA under the $30,000/5 per cent threshold for mandatory reporting, so you’re always reporting them.”

Aisbett said the situations then became a case where her professional judgment was called into question.

“For me I actually find it a little difficult to know do we give our clients a little bit of wriggle room to rectify these things or how do we advise them on what the ATO would really like to see,” she said.

In response to Aisbett’s dilemma, ATO superannuation assistant commissioner Matthew Bambrick said the regulator’s preference for what action to take was fairly simple.

“With all of these things, Belinda, we’re more interested in rectifying the best [way you can] than taking away people’s retirement savings,” Bambrick said.

“So again, try and fix it as fast as you can and tell us you’re doing so. That’s usually your best bet and if in doubt, talk to us.”

Aisbett stressed it was critical to get the LRBA structure correct from the outset because if the situation was deemed irreparable and the asset as a result had to be divested, clients could end up losing money and those circumstances could leave both auditors and advisers facing litigation risk.

“If you’ve got a situation where you’ve got a client that has to divest, and they’ve suffered a loss, they are looking for someone to pick up the tab there, that being the auditor or adviser,” she said.

“It is something we need to be mindful of and this is why I’m not a big fan of sweeping things under the carpet and praying that no one notices.

“When you’ve got issues that are this big, you do really need to manage them for the client and if it means they have to sell an asset, as unfortunate as that is, unfortunately that’s what has to happen.”

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