SMSF members who plan on using the grandfathering rules to use a limited recourse borrowing arrangement (LRBA) to purchase a residential property should examine the contract they have in place to ensure they can still carry out that plan, DBA Lawyers director Dan Butler has stated.
Butler noted that while such acquisitions are banned from 10 August, recent ATO guidance stated any contracts signed beforehand would still be applicable, but they may hinge on conditions relating to whether LRBA financing has already been secured.
“We have this grandfathering rule from 10 August and this requires a contract to be executed by Sunday [9 August],” he said in a webinar presented by his firm late last week.
“Do you think an SMSF executing a contract pre-10 August that is subject to finance will satisfy the grandfathered relief?”
He added that typically for a contract of sale to qualify as being exchanged before 10 August, it should not be subject to any condition precedent to the formation of a legally binding contract.
“The point I raise is ‘subject to finance’ for a contract that’s executed before 10 August, is it a condition precedent to the formation of a contract or is it a condition subsequent [to its formation]?” he said.
“As a lawyer, I would recommend you have a legally binding contract that can have conditions subsequent.
“So the question of whether ‘subject to finance’ is a condition precedent or a condition subsequent, and I’m not being a fancy lawyer here, but you may need to get an opinion on that.
“The Law Institute of Victoria recently came out to advise legal practitioners that ‘subject to finance’ is not a condition precedent to the formation of a contract because the buyer has to do everything they reasonably can to get the finance by the time of settlement.
“So you have to be very careful as many people think ‘subject to finance’ is a condition precedent to the formation, but it is not.
“It is best you don’t have a condition precedent to formation, but you can have ‘subject to finance’ where it’s a condition subsequent and that is okay.”
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