SPAA applauds draft ruling on SMSF borrowings

A new self-managed superannuation fund (SMSF) draft ruling from the Australian Taxation Office (ATO) has relaxed the definition of what constitutes a 'single acquirable asset' within the context of limited recourse borrowing arrangements (LRBAs).

The draft ruling was welcomed by the Self Managed Super Fund Professionals' Association (SPAA), with SPAA national technical director Peter Burgess calling it a "commonsense approach to the interpretation of the rules" that would allow SMSF trustees and financial advisers to plan with confidence.

Since 7 July 2010, borrowed funds under a LRBA could only be used to obtain a single acquirable asset (such as a property) under a single title. The draft ruling SMSFR 2011/D1 recognises that a property that exists on multiple titles can still satisfy the definition of a single acquirable asset.

The ATO also indicated it will allow improvements to assets, as long as the changes are not funded by borrowing and do no alter the 'fundamental character' of the asset. For example, an asset that is destroyed during a flood or fire could be completely rebuilt with insurance money as long as it retains the original asset's fundamental character.

"The single acquirable asset rules and the severe restrictions on asset improvements introduced last year had far reaching implications on the way assets could be acquired and the number of borrowing arrangements that needed to be in place," said Burgess

"This made it very difficult for SMSF trustees and advisers to use the LRBA rules to invest in certain assets to build for their retirement," he added.