The SMSF Professionals’ Association of Australia (SPAA) applauds the Australian Taxation Office’s (ATO) practical approach to the draft legislative instrument about limited recourse borrowing arrangements (LRBAs).
The ATO has released the draft instrument, which will remove some of the technical issues and reduce the red tape around how LBRAs operate under 67A and 67B of the Superannuation Industry (Supervision) Act 1993. Comments on the draft have to be submitted to the ATO by 31 January 2014.
SPAA expects the legislative instrument, which does not require parliamentary approval, to take effect soon after that date, and will make a submission broadly supporting the instrument.
Head of Technical and Professional Standards at SPAA, Graeme Colley, says: “It’s encouraging for the industry when the ATO as regulator of SMSFs adopts such a practical approach.
“This legislative instrument will go a long way to resolving some of the technical issues that were impeding the practical implementation of the law around LBRAs. This is consistent with the Government’s policy of reducing red tape to achieve the intended outcome of legislation.”
Colley says the main benefits of the ATO’s practical approach are:
- That problems that arose with the payment of double stamp duty in some states;
- The need for the paperwork associated with the transfer of the property once the loan had been paid out are eliminated;
- The property can be sold to the market from the holding trust when the trustees decide, removing the need for a number of intervening transactions;
- The need to retain a small second mortgage over the property that is gradually paid off in small amounts to meet the strict technical requirements of the LBRA will now not be necessary.
Colley says it will be interesting to see whether the Taxation Commissioner takes this practical approach to transactions that may have technically breached the law before the legislative instrument takes effect. In light of what’s being proposed, the assumption has to be that this will happen.
The legislative instrument applies only to self managed super funds and not to APRA funds. Colley says: “The question arises is whether APRA will take the same practical approach as the ATO for SAFs (small APRA funds) and the larger superannuation funds.”