New ATO guidance regarding the use of limited recourse borrowing arrangements (LRBA) for the purchase of business real property (BRP) still requires clarification as to when an asset of that nature satisfies that definition and the conditions that would cause it to lapse, an SMSF audit specialist has noted.
Super Clarity director Shelley Banton said the guidance released yesterday stated where an LRBA was used for BRP, the asset must continue as BRP for the life of the arrangement to not breach the recently changed borrowing provisions of section 67A of the Superannuation Industry (Supervision) Act.
“What does that mean? Does it mean you can have a situation where for a small amount of time the asset might not be classified as BRP for whatever reason, but you then get the opportunity to rectify that, or is that a breach of section 67A and the property is out of the fund?” Banton stated during a presentation today at the SMSF Association Technical Summit 2026 in Sydney.
“We’re not too sure what that is going to mean and this is where we look at SMSFR (Self Managed Superannuation Funds Ruling) 2009/1, which talks about a trustee’s intent at a point in time.
“It states if a BRP is vacated, but the intention of the trustee is to continue renting it out, then it continues to be BRP as opposed to that property no longer having the intention of being leased out to business and therefore that BRP exemption stops.
“What happens in the future? You might need to think about putting in place [a document that states] what the intention is over the period of that LRBA, which can be 20 years or more.
“It also means auditors may have to change their procedures. How are they going to know an LRBA that has been entered into is actually BRP and not a shell company that’s on that lease agreement? Are they going to be asking for proof of evidence from the property to make sure it is BRP?
“This is where the devil will come into detail and this is where the evidence will have to back up exactly what you are going to say it is.”
Jason Spits
SENIOR JOURNALIST
Jason is a senior journalist with Benchmark Media and writes for the selfmanagedsuper website and magazine and smstrusteenews website. He has covered financial services since 1999 and has written about life insurance, superannuation, investment management and financial advice, in both a freelance and in-house capacity, and also did a brief stint as a media manager for an industry association. He has been the editor of trade titles Money Management and Financial Standard, and was most recently senior journalist with life insurance title Riskinfo.
Articles by Jason