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12 Dec 13 Limited recourse borrowing arrangements: application of in-house asset exemption

The ATO advises that it has become aware of a number of issues regarding the application of the in-house asset exemption provided by s 71(8) of the Superannuation Industry (Supervision) Act 1993 (SIS Act) to an investment in a related trust held by a self-managed superannuation fund (SMSF) as a required part of a limited recourse borrowing arrangement (LRBA).

The in-house asset exemption does not exclude an SMSF's investment in a related trust from being an in-house asset of the SMSF at the following points in time:

  • at the beginning of an LRBA where a borrowing referred to in s 71(8)(b) of the SIS Act has not yet begun or the related trust does not yet hold the acquirable asset
  • where the asset continues to be held in the related trust after the borrowing referred to in s 71(8)(b) of the SIS Act has been repaid.

To provide certainty for SMSF trustees in such circumstances, the ATO has drafted a legislative instrument under s 71(1)(f) of the SIS Act. The legislative instrument will potentially exclude an investment in a related trust held by an SMSF as a required part of an LRBA from being an in-house asset of the SMSF in the periods mentioned above. The ATO is inviting comments on this draft legislative instrument.

The closing date for submissions is 31 January 2014.


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