A technical specialist has highlighted the need for advisers to ensure their SMSF clients report a property count for certain real estate assets held under a limited recourse borrowing arrangement (LRBA) in their 2020 annual return.
During the latest Accurium technical webinar this week, specialist adviser Mark Ellem alerted practitioners to the requirement represented by a new label, Property Count J7, included in the annual return, which has been added to Section H covering a fund’s assets and liabilities at question 15b regarding Australian direct investments.
“The [assets] we will include in that property count at J7 will only be those where there is actually real property held under the LRBA. So effectively that’s our amounts reported at J1, Australian residential real property, J2, Australian non-residential real property or commercial property, and J3, overseas real property regardless of whether it’s residential or non-residential/commercial,” Ellem noted.
“It will also [need] to include any fractional interest in real property. So, unusual as that may be and from a structural point of view a little bit complex, if the fund only has a partial interest in an asset held under an LRBA and that asset is real property … then it will be counted as one [property].”
He pointed out assets held under an LRBA that are not real property, such as shares, should not be reported as part of the J7 label. Similarly, the new label does not require real property the SMSF holds directly to be counted, he said.
“So it looks as though this J7 [label] has been added here to gather further data and information on what property SMSFs are holding under a limited recourse borrowing arrangement and it may be a continuation of the ATO’s focus on investment strategies and diversification of SMSFs that hold property,” he noted.
New reporting requirements on the annual return relating to SMSFs holding assets under an LRBA were introduced by the Treasury Laws Amendment (2018 Superannuation Measures No 1) Bill 2019 to enable the regulator to collate more information about funds employing these strategies.