The draft legislation on limited recourse borrowing arrangements (LRBA) should be introduced into Parliament, as it provided much-needed clarity on which entity was responsible for income tax, according to Strategy Steps.
Strategy Steps technical specialist Natasha Panagis said the changes, announced by Treasury on 19 January, were positive for the SMSF industry.
“Trustees of SMSFs will now have more clarity about the tax treatment of LRBAs,” Panagis told selfmanagedsuper.
“Now they’ll know that the SMSF, which is the investor, will be treated as the owner of the trust’s assets for taxation purposes, not the bare trust.
“Hopefully it does get introduced into Parliament as a bill because at the moment it’s still in draft stage, so it would be good to see it come through.”
The changes were set to apply retrospectively from 1 July 2007.
Further, Panagis said while it was common for the industry to ignore the trust and treat the investor as the owner, it had still been a key area of concern.
“With the current industry practices [previous to the draft’s release], advisers and trustees were assuming that the SMSF was the owner of the assets, but it was never really written in legislation,” she said.
“And although it’s positive news, the legislation only covers the income tax element, so it doesn’t change the other tax implications, such as stamp duty or GST, so it’s still important to get advice about structuring the LRBAs to ensure these tax issues are considered and that there are no unintended consequences in the end.”
Commenting on whether the draft legislation indicated the potential banning of gearing was no longer a possibility, she said: “I believe it was part of the Cooper review in 2010, which stated it would review borrowing in super, but I’m not too sure if the [draft legislation] is directly linked and LRBAs are here to stay as a result.”
