The government has drafted proposed changes to the Superannuation Industry Supervision (SIS) Act that will clarify the rules regarding the use of borrowing within self managed superannuation funds (SMSFs).
The new legislation now dictates that Limited Recourse SMSF Borrowing, previously referred to as instalment warrants, can now only be used to purchase a 'single acquirable asset' or a 'collection of identical assets'.
"The end result is that SMSF borrowing for property is entrenched and enhanced whilst borrowing for shares has become difficult and very expensive in terms of legal documentation," SMSF Strategies principal Grant Abbott said.
This is because every different share holding in a separate company will now be treated as a single acquirable asset requiring a separate bare trust for each.
"The definition of 'acquirable asset' will make it impossible to borrow to invest in a mixed parcel of listed shares unless each separate company's shares in the parcel are the subject of a separate borrowing or the investment is through another vehicle (asset) that can fall within the definition, such as a managed fund," Townsends Lawyers said.
The legislation amendments have also allowed the use of personal guarantees in SMSF borrowing arrangements but have limited their operation.
Now if a guarantee is put in place against members acting as trustees of an SMSF it can only be enforceable against the trustee to the extent of the rights relating to the acquirable asset.
Refinancing has also been allowed under the proposed changes to the SIS Act meaning existing SMSF loans can be refinanced. Transactions such as this will be treated as a change in SMSF loans.
In addition SMSF trustees will be able to use loans to pay for borrowing expenses such as conveyancing fees, stamp duty and brokerage fees.
The propose amendments to the SIS Act are still awaiting royal ascent and the earliest this may happen is the next Senate sitting day this year on 15 June.
