June 30, 2009
Some SMSF Borrowings Reviewed
Some SMSF borrowings reviewed
The Tax Office has released a taxpayer warning in 2008 to notify trustees to be careful regarding getting into some limited recourse borrowings to obtain assets for their self managed super fund, SMSF.
Some aspects of limited recourse borrowings from an associated person to a trustee may not agree with borrowing conditions under superannuation laws.
New changes to superannuation laws have eased earlier restrictions related to borrowing on SMSF for purchasing assets. Yet there are limitation that related mainly to in-house assets and obtaining some assets from an associated person of the SMSF.
Tax Commissioner Michael DAscenzo responded that the Tax Office is not worried about SMSF limited recourse borrowings.
Mr DAscenzo said that they are worried when borrowings present non commercial interest rates, or when interest is capitalized, or when members offer personal guarantees secured beyond charges on the asset acquired.
The tax office reminds the trustees that the limited recourse borrowing agreement is not relevant to existing SMSF assets. They still do not allow installment warrant investments by shareholder application or cash extraction arrangements.
Trustees who are concerned about their limited recourse borrowing provisions, they must get their own independent advice or ask for advice from the Tax Office regarding the superannuation regulatory issues.
