LRBA ban has many unknown elements

A superannuation specialist has noted a lot more detail is required from the government to allow SMSF trustees to understand whether a particular premises can be considered business real property and exempt from the legislative change no longer allowing limited recourse borrowing arrangements (LRBA) to be used to acquire residential real estate.

“There has been no explanatory memorandum [relating to this legislative change]. The ban was quite late in the game [and] we don’t have too much detail explaining how this might operate,” Institute of Financial Professionals Australia head of technical services Stuart Sheary told attendees of a member webinar held last week.

“We also need more details around the timing of the business real property. So the act does not say whether business real property is tested at the time of entering into the contract, at settlement or if it needs to be satisfied throughout the life of the loan.”

Further, Sheary recognised clarity is still needed regarding situations where the use of the property changes over the course of the LRBA, as well as circumstances where commercial property is not satisfying the business real property test, seeing the ban is not a clean residential real estate ban.

According to Sheary, he is already hearing anecdotal evidence about situations where commercial property is causing uncertainty in the context of the LRBA ban.

“An example there, that I’ve heard, is where we’ve got a building and on that building is a billboard and that billboard perhaps is used to produce some passive income,” he said.

“Is that passive income from the billboard that’s attached to that property going [to disallow it] from satisfying the business real property test because the individual who owns that property is not running the business of [providing advertising space].

“So that could potentially impact the business real property test.”