The ATO has advised that it has become aware of a number of issues regarding the application of the in-house asset exemption provided by s 71(8) of the SIS Act to an investment in a related trust held by an SMSF as a required part of a limited recourse borrowing arrangement (LRBA). The ATO said the in-house asset exemption does not exclude an SMSF’s investment in a related trust from being an in-house asset of the SMSF at the following points in time:
- at the beginning of an LRBA where a borrowing referred to in para 71(8)(b) has not yet begun or the related trust does not yet hold the acquirable asset;
- where the asset continues to be held in the related trust after the borrowing referred to in para 71(8)(b) has been repaid.
To provide certainty to SMSF trustees, the ATO said it has drafted a legislative instrument under para 71(1)(f). It said the instrument will potentially exclude an investment in a related trust held by an SMSF as a required part of an LRBA from being an in-house asset of the SMSF in the periods outlined above. The ATO is inviting comments on the draft legislative instrument and explanatory statement.
SUBMISSIONS are due by 31 January 2014. ATO contact: Nadia Alfonsi – Tel: (02) 9374 8298; Email: Nadia.Alfonsi@ato.gov.au; Mail: Tax Counsel Network, Australian Taxation Office, GPO Box 9977, Sydney NSW 2001.
[LTN 241, 12/12/13]
SPAA welcomes ATO’s draft instrument
The SMSF Professionals’ Association of Australia (SPAA) on Fri 13.12.2013 applauded the ATO’s practical approach of using a draft legislative instrument to quickly address an in-house asset problem for limited recourse borrowing arrangements (LRBAs). SPAA noted that the Tax Office has released a draft legislative instrument (see above), which will remove some of the technical issues and reduce the red tape around how LBRAs operate under ss 67A and 67B of the SIS Act.
SPAA expects that the legislative instrument, which does not require parliamentary approval, will take effect soon after submissions close on 31 January 2014. Head of Technical and Professional Standards at SPAA, Graeme Colley, said it is encouraging for the industry when the Tax Office as regulator of SMSFs adopts such a practical approach. When finalised, Mr Colley said the 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.
- According to SPAA, the main benefits of the ATO’s practical approach is that problems that arose with the payment of double stamp duty in some States, and
- the need for the paperwork associated with the transfer of the property once the loan had been paid out, are eliminated.
- Mr Colley said the instrument should also enable a property to be sold to the market from the holding trust when the trustees decide, removing the need for a number of intervening transactions.
[LTN 242, 13/12/13]