SMSFs warned on emerging LRBA issue
The SMSF Association (SMSFA) has warned that SMSF trustees are becoming involved with illegal and risky limited recourse borrowing arrangements (LRBAs) involving the use of in-specie contributions.
Speaking to SMSF Adviser, SMSFA director of technical and professional standards Graeme Colley said some SMSF trustees are making an in-specie contribution of property to their SMSF because the fund does not have the resources to purchase the property and are then attempting to transfer it into an LRBA once the asset is held by the fund.
“Auditors are picking up on this and saying [to trustees] that this just doesn’t meet the requirements of LRBA,” said Mr Colley.
“The thing with illegal borrowing arrangements is you’ve got to unwind them and that can be an expensive exercise because it may involve stamp duty and certainly may involve some capital gains tax."
The ATO has been looking at a number of similar cases, he added.
While the ATO commissioner has been quite generous in giving people a reasonable amount of time to unwind these arrangements, in cases where the tax office believes actions are part of a tax avoidance strategy, “trustees could fall into some big traps”, Mr Colley said.
The increased surveillance of auditors by ASIC and the ATO could be one of the reasons why these types of issues are surfacing and more enquiries are coming through to the SMSFA, he said.
“I think auditors are becoming a bit more particular about superannuation funds and they’re having a closer look at them [now] because they know that ASIC and the ATO is having much closer look at SMSF auditors,” he said.
Miranda Brownlee is the deputy editor of SMSF Adviser, which is the leading source of news, strategy and educational content for professionals working in the SMSF sector.
Since joining the team in 2014, Miranda has been responsible for breaking some of the biggest superannuation stories in Australia, and has reported extensively on technical strategy and legislative updates. Miranda has also directed SMSF Adviser's print publication for several years.
Miranda also has broad business and financial services reporting experience, having written for titles including Investor Daily, ifa and Accountants Daily.