New ATO decision on LRBAs ‘good news’

“The instrument addresses concerns raised by industry about the application of the in-house asset exemption provided by subsection 71(8) of the SIS Act to an investment in a related trust held by an SMSF as a required part of [an] LRBA,” the ATO stated.

“This instrument ensures that an investment in a related trust held by a SMSF as a required part of a LRBA is excluded from being an in-house asset of the SMSF in the circumstances described in the instrument.”

This instrument is taken to have commenced on 24 September 2007, the ATO stated, aligning with the date of effect of the introduction of provisions in the SIS Act allowing trustees of regulated superannuation funds to enter into LRBAs.

“This ensures SMSFs that entered into LRBAs prior to the making of this instrument are not disadvantaged as compared with SMSFs that enter into LRBAs after the making of this instrument,” the ATO stated.

“The effect of this instrument is to the advantage of affected parties.”

Speaking to SMSF Adviser, the SMSF Professionals’ Association of Australia’s senior manager, technical and policy, Jordan George, said the ATO has taken a practical approach in administering the law around limited recourse borrowing and in-house assets.

“We think… that it’s a really good, common-sense approach that the ATO has taken to a technical problem and it definitely reduces the compliance issues for SMSFs that do use LRBAs.”

“In fact it should reduce any extra steps advisers may have been taking to make sure that trustees were complying with the technical interpretation of the law. So it should make things more simple and straightforward for advisers and trustees.”