Limited Recourse Borrowing Arrangements for Self-managed Superannuation Funds (Essay Sample)
RULES GOVERNING LIMITED RECOURSE ARRANGEMENTS
• Super fund assets are better protected in the event of a default on a loan
• The asset within the limited recourse arrangement can only be replaced by the different asset in very specific circumstances within the superannuation law
• Limited recourse borrowing arrangements cannot be used to borrow funds to improve an asset, however they may use cash to make improvements
• The borrowing is only permitted over a single asset or a collection of identical assets with the same market value
• Recourse by the borrower (or any other person against the superannuation fund trustee) for default is limited to rights relating to the acquirable asset
According to July 2015 ATO statistics, there are 556,998 SMSFs in Australia. Within those SMSFs the estimates of the amount of assets held by SMSFs for residential property is $21,676 million and $66,735 million for non-residential property. Overseas property also features with $215 million for residential property and $114 million in non-residential
Borrowing to buy property
Australia: Limited recourse borrowing arrangements (LBRA) for self-managed superannuation funds (SMSF)
Some of the key issues in paying out limited recourse borrowing arrangements (LRBA) in self managed superannuation funds (SMSF) and transferring the fund property from the custodian to the trustee of the SMSF.
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With a Self Managed Superannuation Fund (SMSF) you can invest in all types of property including residential and commercial (e.g. office, retail and industrial), however there are restrictions around how to borrow money to fund such an investment.
As it stands today, you can only borrow money to purchase an asset within an SMSF by using a ‘limited recourse borrowing arrangement’ (LRBA). This means that any recourse the lender has under the borrowing arrangement is limited to the single asset purchased using the LBRA and can’t touch the other assets of the SMSF.
The rules around borrowing money to purchase an SMSF asset were relaxed in July 2010, which showed an increase in SMSF owners purchasing property. In 2010, ATO statistics show $755 million of assets with limited recourse borrowing arrangements. 5 years later, that figure is at staggering $15,587 million!
RULES GOVERNING LIMITED RECOURSE ARRANGEMENTS
* Super fund assets are better protected in the event of a default on a loan
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