The Australian Taxation Office (ATO) has offered some clarification on a few of the contentious areas contained in new superannuation borrowing laws handed down in July this year.
In a definitive explanation of the one of the questions over borrowing rules, the ATO has pointed out that property acquired by a self-managed superannuation fund (SMSF) via a limited recourse loan cannot be subdivided.
The rationale behind the interpretation follows the explanatory memorandum of the new gearing laws that states subdivided land is a replacement asset, precluding it from being purchased by a super fund through the use of gearing.
This means if an SMSF trustee wants to use borrowings to purchase land intended for subdivision, the loan must be paid off before any subdividing activity can take place.
However, the ATO's response to an SMSF using a limited recourse loan to purchase an off-the-plan apartment was less clear.
When the new laws took effect, doubt existed as to whether an off-the-plan apartment would be treated as an improvement to a property that cannot have limited recourse borrowings incorporated in its purchase.
The ATO's opinion is that it depends upon the circumstances surrounding the property. According to SMSF specialists DBA Lawyers, the ATO is concerned about when the borrowing to purchase the property was arranged, specifically whether or not it was organised after the apartment was finished and the land subdivided.
DBA recommends SMSF trustees seek specific advice in these situations before proceeding.
Another situation the ATO said should be considered on a case-by-case basis is the acquisition of real estate with multiple titles using borrowings.
The regulator has indicated where the assets can't be practically separated or if the ancillary asset is of minimal value they can be treated as one asset. However, the ATO then declared this treatment would not automatically apply to a strata title with an associated car park or commercial premises with more than one title.
As such, DBA again suggested specific advice from the ATO would be preferable in these situations.
