SMSFs should not view a single acquirable asset that can be acquired under a limited recourse borrowing arrangement (LRBA) as being limited to one property nor regard usage of multiple properties for a single purpose as also meeting that definition, an SMSF specialist has noted.
Cooper Partners Financial Services senior manager Lindzee-Kate Tagliaferri noted the Superannuation Industry (Supervision) Act did not define a single acquirable asset for LRBA purposes, but rather the multi-layered definition was given in an ATO Self Managed Superannuation Funds Ruling (SMSFR) 2012/1.
“SMSFR 2012/1 walks through what is considered a single acquirable asset and how slight differences to the asset being acquired may include or exclude it from the definition of being a single acquirable asset,” Tagliaferri said during a presentation hosted today by The Auditors Institute.
“The ruling states that when considering whether an asset is a single acquirable asset, you must have regard to the proprietary rights of the object and the objective of those proprietary rights to assess whether the fund would be acquiring a single object of property.
“For example, more than one title of property would be more than one object, however, where it’s reasonable to conclude that one cannot be sold without the other, that is, multiple objects are distinctly identifiable as a single asset, the asset can be considered singular.”
She said in such cases the existence of a unifying physical object, which was permanent and held significant value in relation to the value of the entire asset, would be critical, as would any state or territory law that requires multiple objects to be treated as one.
A house on land, which is not easily removable and was significant in value, would meet that criteria, while a business conducted across various titles would not, she added.
“The ruling uses the example of a farm that operates across multiple titles as a cropping business. That is not sufficient evidence for it to be a single acquirable asset because the crops are temporary. They can be removed,” she said.
“Also, there is no requirement under state or territory law, generally speaking, that those titles be sold together and there is nothing that is permanently on those titles making them one set.
“Crops, fences and other minor and incidental infrastructure, even sheds, may not be considered significant enough in value or cumbersome enough to remove to be considered a single acquirable asset.”
