axpayer Alerts (TA) are intended to be an ‘early warning’ of significant new and emerging higher risk tax and superannuation planning issues or arrangements that the Australian Taxation Office (ATO) has under risk assessment, or where there are recurrences of arrangements that have been previously risk assessed. On 20 Nov 2012, the Australian Taxation Office (ATO) released TA 2012/7 outlining its concerns with respect to a number of scenarios wherein a self-managed superannuation fund (SMSF) acquires property using limited recourse borrowing arrangements (LRBAs) or through related unit trusts.
The ATO lists the following concerns:
(a) The borrowing and the title of the property is held in the individuals’ name and not in the name of the trustee of the holding trust. The SMSF funds part of the initial deposit and the ongoing loan repayments;
(b) The title of the property is held by the SMSF trustee not the trustee of the holding trust;
(c) The trustee of the holding trust is not in existence and the holding trust is not established at the time the contract to acquire the asset is signed;
(d) The SMSF trustee acquires a residential property from the SMSF member;
(e) The acquisition comprises two or more separate titles and there is no physical or legal impediment to the two titles being dealt with, assigned or transferred separately; or
(f) The asset is a vacant block of land. The SMSF intends to use the same borrowing to construct a house on the land. The land is transferred to the holding trust prior to the house being built.
In related unit trust property acquisitions, the ATO raised concerns where both the SMSF and its members separately invest in a related unit trust and the assets of the unit trust are offered as collateral or charge for a loan that was used to finance the member’s interest in the trust. According to the ATO, arrangements that include these features risk contravening a number of compliance rules including the sole purpose test, the in house rules and the super gearing (LRBA) rules. If you are concerned about administering your SMSF, you can outsource administration and compliance to Frontier Tax Services. READ ABOUR OUR SMSF ADMIN SERVICE
