Asset character determines LRBA set-up

A superannuation technical expert has reminded practitioners the single acquirable asset requirement pertaining to limited recourse borrowing arrangements (LRBA) is determined by the characteristics of the item in question and not the vendor’s treatment of it.

To emphasise this point, BT Group advice strategy and technical specialist Tim Howard used an example where an SMSF trustee was looking to acquire adjacent vacant plots of land using one LRBA where the vendor will only sell the two blocks of land together, even though there is no physical or legal impediment to the two blocks being sold separately.

“If that is in fact the case, they are two separate single assets. So those two blocks of land could not be purchased under the one LRBA,” Howard told attendees of a webinar for practitioners held yesterday.

“You would actually need to set up two LRBAs to purchase those two blocks, so two separate borrowing arrangements, because there’s no reason why each of those blocks couldn’t be sold separately.

“Just because the vendor only wants to sell them in one transaction, that doesn’t mean they’re one single asset for the purpose of [purchasing the properties using an LRBA].”

He took the opportunity to confirm vacant land, though, can be acquired using an LRBA.

“Where you have vacant land, it can still meet the definition of BRP (business real property). So even if there’s no building on it, it can still meet the definition of BRP to the extent it is being used wholly and exclusively by one or more businesses,” he said.

“So an example might be [where] a business is renting it to store equipment, might be using it as a parking area for their tenants or parking area for customers. [It could be] a construction business might be renting vacant land to store construction equipment [like] scaffolding, cranes [or] whatever it is [when it is] between jobs.

“If that business use is there, even vacant land can meet the definition of BRP and could be acquired under an LRBA.”