National Australia Bank (NAB) Equity Lending is fielding more inquiries from trustees as they consider the action required to comply with the related-party limited recourse borrowing arrangement (LRBA) safe harbours.
“We are fielding quite a lot of queries from trustees for that particular reason as refinancing the transaction, which the guidelines provide for, with a commercial lender like NAB, for example, can be one of their options,” NAB Equity Lending head Adrian Hanley told selfmanagedsuper.
“But I wouldn’t necessarily state that they’re all going to gravitate to making arrangements with financial institutions, though there are trustees who certainly see the benefits in doing that because it can, in certain circumstances, offer a greater degree of flexibility.
“It is quite complicated to enter into an LRBA and the safe harbours that the ATO issued are quite strict around the terms, so there are some significant obligations.
“Our offering, NAB Super Lever, also gives trustees a high degree of confidence that they’re meeting the compliance requirements of the Superannuation Industry (Supervision) Act, which is critical.
NAB Super Lever, launched in 2012, is a commercial LRBA, which is designed for listed shares, exchange-traded funds and unlisted managed funds.
With several institutional closures of lending facilities for SMSFs, Hanley confirmed NAB was committed to its lending operations.
“The growth we’ve experienced has been quite steady since we launched Super Lever, but we saw more activity over the last six months,” he said.
“I would stress the fact that in terms of the lending that we conduct within the Equity Lending business inside NAB, it would be less than 5 per cent, but I think we play an important role in supporting trustees.
“This is a longer-term strategic approach for us, so as far as we’re concerned, while it’s reasonably small at the moment, it plays an important role for the customers of the bank and SMSF trustees who want to contemplate building their assets inside of superannuation without breaching their contribution caps.
“And it’s provided trustees with some food for thought in how they restructure those transactions.”
The ATO released Practical Compliance Guideline 2016/5 “Income tax – arm’s length terms for Limited Recourse Borrowing Arrangements established by self-managed superannuation funds” in April.
A compliance deadline for the safe harbours was originally given as 30 June, but was recently extended to 31 January 2017.