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Compliance, LRBA

LRBA compliance essential despite COVID-19

LRBA compliance

Trustees selling units in a trust subject to an existing LRBA should keep in mind the relevant compliance issues, regardless of the COVID-19 pandemic.

Trustees thinking of selling units in a unit trust subject to an existing LRBA as a result of the coronavirus pandemic must factor in the usual SMSF compliance issues, a legal expert has said.

Townsends Business & Corporate Lawyers superannuation online services managing solicitor Jeff Song today said trustees forced to sell units in order to increase the liquidity of their fund should keep in mind the relevant compliance issues, regardless of current exceptional circumstances.

“The pandemic is threatening the health of people as well as the economy. The circumstances might provoke trustees to rush into transactions. However, it is important to realise that general compliance requirements for SMSFs are still in place despite the lockdown of the cities and ATO’s reliefs in limited circumstances,” Song said in a media release.

Pointing to an example of a couple seeking to sell $20,000 worth of their units in a unit trust in order to access their super under the federal government’s new early access relief measure, he said trustees in this situation should take “extra caution”.

“At the time of the purchase, there would have been a requirement under superannuation gearing law that a loan could only be used to acquire ‘a single acquirable asset’. In relation to shares and units, a parcel or group of identical shares or units (that is, of the same type, value or class) is deemed to be ‘a single acquirable asset’ for LRBA purposes,” he said.

“Once the units are acquired with the loan, they will have to be held as a single undivided parcel until the full repayment of the loan as section 67B of the Superannuation Industry (Supervision) (SIS) Act operates to effectively prohibit any trading of a portion of the acquired collection of units.”

In order to remain compliant, trustees considering liquidating a collection of units would need to sell all of their units, or discharge the loan in full and sell any portion of the units, or retain the units in the fund, he added.

“Their decision should also be based on and comply with the current investment strategy of the fund and if the decision involves further actions by the holding trustee, there should be a clear documented direction from the fund trustee to the holding trustee,” he said.

During a recent Cooper Grace Ward SMSF conference, partner Clinton Jackson said the ATO was looking to introduce a new legislative instrument that would expand the methods an SMSF could use to structure an LRBA without breaching the SIS Act.

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