LRBA legislation “lacking guidance”, says consultant

Written by Miranda Brownlee Tuesday, 05 January 2016

There remains confusion around limited recourse borrowing arrangements, according to one consultant, with a lot of practitioners still failing to understand how the rules operate.

Miller Super Solutions founder Tim Miller told SMSF Adviser that a lot of the recent industry discussion and ATO guidance on LRBAs and related party loans in particular has thrown up new and existing LRBA issues for practitioners.

“In the practitioner world, people get concerned whenever there’s some kind of release or new concept of what the government are doing,” he said.

In some cases, he said, some of the action by the government on LRBAs has brought LRBAs into the spotlight, and potentially led practitioners and their clients to jump into these arrangements.

“When the government comes out and says 'we’re not going to ban limited recourse borrowing arrangements', of course people then go ‘wow, let’s get into these things’, which of course they’ve really been able to do for a long time now, but then they still don’t understand the rules.”

He added: “When you then add in all the various state-based rules, they get relatively confused.”

Mr Miller explained there is a lot of complexity to the rules with practitioners having to consider issues such as when to get the holding trust stamped, created and executed – “all those sorts of things which differ state by state”.

“I think the lack of legislative guidance with regards to limited recourse borrowing arrangements really does concern a lot of parties out there,” said Mr Miller.

Some of the recent guidance by the government and ATO on related party loans has also led to confusion among practitioners, he said.

“The legislation, in my view, gives you the ability to take some loan liberties. What I mean by that is understand that you can do related party loans, and you can change things up a bit, but you’ve still got to be relatively commercial about it, you can’t push too many boundaries,” he said.

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