SPAA urges caution on new borrowing rules

The Self Managed Super Funds Professionals’ Association of Australia (SPAA) has urged caution to SMSF advisers and trustees about the tough new measures that apply to limited recourse borrowing arrangements put in place on or after 7 July, 2010.

SPAA national technical director Peter Burgess (pictured) said the most significant changes to the rules include the requirement for borrowed funds to be used to obtain a single acquirable asset as well as the restrictions imposed on replacing or improving the asset once it has been acquired.

The changes to the limited recourse borrowing rules for SMSFs apply to arrangements put in place on or after 7 July, 2010, or to refinances of existing loans on or after this date. Before 7 July, 2010, more than one asset could be acquired and assets did not have to be the same form or type in order to undertake a single limited recourse borrowing arrangement.

The acquisition of real property on separate titles is also not permitted unless a separate borrowing arrangement is put in place for each title. For example, several residential units in the same apartment complex with the same characteristics will need separate borrowing arrangements.

Another contentious issue, according to SPAA, concerns improvements to properties for which limited recourse borrowing arrangements have been put in place after 7 July, 2010. The association says the changes essentially mean renovations or improvements are not permitted as they may give rise to a different asset to the single acquirable asset that was the subject of the arrangement.