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ATO, LRBA

ATO begins intermediary LRBA consultation

Intermediary LRBA

The ATO has announced its draft legislative instrument regarding intermediary limited recourse borrowing arrangements is open for consultation until mid-March.

The ATO has opened the consultation process on its draft legislative instrument for intermediary limited recourse borrowing arrangements (LRBA).

The regulator announced the draft legislative instrument, Superannuation Industry (Supervision) In-house Asset Determination – Intermediary Limited Recourse Borrowing Arrangement Determination 2020, would be open for consultation until 13 March.

“The draft legislative instrument and accompanying explanatory statement is relevant to the trustees of self-managed super funds (SMSF) who enter into a specific type of LRBA arrangement called an intermediary LRBA,” it said.

It stated the intermediary LRBA arrangement meant SMSFs could borrow indirectly through a holding trustee.

“Under the arrangement, the trustee of the holding trust borrows money as principal from a lender to acquire a single acquirable asset, but the SMSF maintains the holding trustee’s borrowing,” it noted.

In its accompanying explanatory note, it pointed out the effect of the legislative instrument was to determine that an investment in a related trust covered by the instrument was not an in-house asset of the fund.

“The purpose of this instrument is to exclude an investment by a fund in a related trust from being an in-house asset of a fund under paragraph 71(1)(f) of the Superannuation Industry (Supervision) Act 1993 (SIS Act) in circumstances where the investment in the related trust is in connection with an intermediary LRBA that complies with section 67A of the SIS Act,” it said.

It also noted the legislative instrument would take effect retrospectively and commence on 24 September 2007.

“The instrument commences retrospectively to ensure that a trustee of a fund that has entered into an intermediary LRBA as defined in subsection 5(b) of the legislative instrument will not be disadvantaged,” it added.

Last year, the ATO confirmed the SMSFs contacted via letters as part of its probe into the diversification of fund investment strategies used an LRBA to acquire their single asset or asset class.

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