Many in retirement are travelling comfortably, with three key factors contributing to their happiness – good physical and mental health and enough money to enjoy life.
Perhaps the assumption that markets are still anchored by predictable economic policies needs to be challenged. For the first time since the fall of the Berlin Wall, political volatility – once background noise – is potentially reshaping investment risk at a structural level.
ATO clarifies SMSF borrowing arrangements
The Australian Taxation Office (ATO) has set out the test it will apply when determining whether an “intermediary limited recourse borrowing arrangement” is an in-house asset of a self-managed superannuation fund (SMSF).
The ATO has issued a legislative instrument to clarify the position of SMST trustees who use intermediary arrangements to structure fund borrowings.
Such arrangements involve a holding trust borrowing money to acquire an asset and an SMSF maintaining the borrowing. In other words, the SMSF has set up a limited-recourse borrowing arrangement (LRBA) through an intermediary holding trust.
Under the legislative instrument, the SMSF’s investment in the holding trust will not be regarded as an in-house asset, as long as the LRBA meets certain requirements.
The requirements include:
- members of the SMSF are the only trustees or shareholders and directors of the holding trustee;
- the trustee of the fund is a beneficiary of the holding trust;
- the holding trustee holds an acquirable asset on trust for the trustee of the fund, who is beneficially entitled to the asset;
- the asset is a single acquirable asset; and
- the holding trustee enters into a borrowing as principal with a lender, with the borrowing secured by a mortgage over the asset.
The legislative instrument applies to any intermediary LRBA arrangement set up from 24 September 2007 onwards and any that are established in the future.
The legislative instrument allows the SMSF trustee to avoid a situation where their investment is deemed to be undertaken with related parties. If it is a related party, the acquisition must not exceed the 5 per cent in-house assets limit.
In an SMSF Bulletin published earlier this year, the ATO said it had seen an increase in the number of SMSFs entering into arrangements with other parties (both related and unrelated) for the purchase and development of the property.
The ATO says property development can be a legitimate investment for SMSFs and there are no prohibitions preventing an SMSF from investing directly or indirectly in property development.
However, it is concerned that such investments can cause problems where they are used to inappropriately divert income into superannuation.
It also says SMSF assets may be used to fund property development ventures in a manner that is inappropriate for and sometimes detrimental to retirement purposes.
The ATO says it is concerned that in some cases trustees do not understand the structure of their property development investment or how the ungeared related company or unit trust exception operates. As a result, trustees can take action that inadvertently breaches the in-house assets rule.
