SMSF members who hold shares of a single company acquired under a limited recourse borrowing arrangement (LRBA) cannot sell them as separate parcels in the event a share split has taken place, a fund structure expert has warned.
Acis SMSF services director Peter Johnson said section 67A (3) of the Superannuation Industry (Supervision) (SIS) Act stated a collection of assets that are all identical have the same market value, but had to be treated as a single unit as well.
“For example, a parcel of shares is one asset. If you borrow to buy a parcel of BHP shares and you got 1000 of them, you can’t sell half. You’ve got to sell all 1000 shares,” Johnson confirmed during a practitioner briefing last week.
“We used to say to people: ‘Get a number of LRBAs and buy a number of parcels of shares so you can sell one parcel and not all of the shares if you so desire.’”
He added the next section of the SIS Act, section 67B, extended this treatment to replacement assets and prohibited SMSF investors under an LRBA from splitting share parcels where they have increased in size by external actions.
“What if I borrowed to buy BHP shares and then the company splits the shares into two, like they’ve done a number of occasions. I borrowed to buy 1000 shares and now I hold 2000. How does that work?” he asked.
“What if I borrowed to buy stapled securities and they unstapled them?
“You still treat each one as if it’s still one share or security. If a security unstaples, you can’t sell one without the other.
“If shares merge or get taken over, you still have to treat what you bought as one single asset.
“Always treat the asset, when you buy and sell, as one thing on its own.”
