The Self Managed Super Funds Professionals’ Association of Australia has issued a warning to brokers over tough new measures involved in SMSF lending, particularly in regard to limited resourse borrowing arrangements.
SPAA national technical director Peter Burgess said the most significant and controversial changes to the rules, which came into force on 7 July this year, 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.
“We believe the definition of a single acquirable asset may catch out SMSF members who are not aware of the legislative changes,” Burgess said.
Before July, 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 single acquirable asset rules have implications for advisers regarding the way in which assets can be acquired and the number of borrowing arrangements which may need to be put in place,” Burgess said.
Under the new arragements, the SPAA said the acquisition of real property on separate titles is 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.
Renovations or improvements are also not permitted as they may give rise to a different asset to the single acquirable asset that was the subject of the arrangement, regardless of the source of the funds used to renovate or improve the asset.
“In the context of real property, the inability to improve the asset during the life of the loan is a significant issue and extreme care should be exercised where it is the intention of an SMSF trustee to alter a property acquired under a limited recourse borrowing arrangement,” Burgess said.