Investments, LRBA

Check share holdings with LRBA

SMSF LRBA shares portfolio single acquirable asset

SMSFs using an LRBA to purchase shares should be certain they are considered a single asset to ensure the holdings don’t breach ATO loan rules.

SMSF trustees looking to use a limited recourse borrowing arrangement (LRBA) to purchase listed shares should be aware of the rules relating to single acquirable assets contained within ATO guidance, a technical specialist has warned.

BT technical consultant Tim Howard noted that while many LRBAs are set up to purchase property, it was possible to acquire shares through the arrangements if those shares could be viewed as a single acquirable asset under the ATO’s Self Managed Superannuation Funds Ruling (SMSFR) 2021/1.

Speaking during an online presentation today, Howard contrasted whether an SMSF could own a portfolio of listed shares from different companies compared to those from a single company.

“Can an SMSF trustee establish a LRBA to acquire a diversified portfolio of listed securities on the Australian Securities Exchange across a number of different industrial companies? I did get a little bit specific on this because specifics matter and the answer to that question is false,” he said.

“An SMSF cannot acquire [under an LRBA] a diversified portfolio of listed securities because they come from a range of companies and wouldn’t meet the definition of a single acquirable asset that can be acquired under an LRBA.”

He said conversely an SMSF could establish an LRBA to acquire a parcel of shares in a single listed company as these would be viewed as a single asset in a single company, but only when those shares were identical.

As such, he warned SMSFs should avoid dividend reinvestment plans with a parcel of identical shares purchased via an LRBA.

“We could have the same number of shares in a listed company, which meets the definition of a single acquirable asset under an LRBA, but we can’t enter into the dividend reinvestment plan because of the LRBA,” he said.

“The reason for that is in most instances the dividend reinvestment plan will be adding additional securities to that holding, so rather than having 1000 shares being a single acquirable asset, it could go up to 1020, and then 1048 and so on.

“That plan has changed the actual single acquirable asset for the purpose of the LRBA and that will be an issue for the arrangement so don’t enter into a dividend reinvestment plan on the same holding number for those securities.”

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