Some of the uncertainty surrounding the operation of the
superannuation borrowing provisions may soon be clarified, as a
result of the introduction of the Superannuation Industry
(Supervision) Amendment Bill 2010 (Bill) into Parliament on 26
The Bill would repeal the current borrowing exemption in section
67(4A) of the Superannuation Industry (Supervision) Act
1994, and replace this with new sections 67A and 67B.
New section 67A is an updated version of the current section
67(4A), while the new section 67B contains detailed provisions
relating to the replacement of an asset, under a borrowing
Significant changes to the borrowing provisions include:
The borrowing must be applied for the acquisition of a
'single acquirable asset'. This requirement is intended to
ensure that a borrowing cannot be used to acquire multiple assets,
unless they are a collection of identical assets that have the same
market value (eg a parcel of identical shares in a company or units
in a unit trust). The Bill's explanatory memorandum sets out a
number of acquisitions which would not count as the acquisition of
a 'single acquirable asset'. These include acquisitions of
shares in different entities, and acquisitions of a number of
buildings (even if substantially all the same) on separate strata
titles. The explanatory memorandum also states that a borrowing
cannot be used to acquire a premises which includes its
furnishings. Rather, separate borrowing arrangements would need to
be entered into; one for the premises and one or more for the
The borrowing can be used to pay expenses incurred in
connection with the acquisition of the asset (eg conveyancing fees,
stamp duty and loan establishment fees).
The borrowing can be used to maintain or repair the asset, but
it cannot be used to improve the asset. For example, a borrowing
could not be used to construct a building on land or to undertake a
renovation (other than to make repairs which did no more than
ensure that the functional value of the property was not
The borrowing cannot be used to acquire cash. That is, the
borrowing cannot be structured in the form of a margin lending
Trustees of superannuation funds can refinance existing
borrowings. The omission of any ability to refinance under the
current provisions appears to have been an error, but has been of
concern to those embarking on superannuation borrowing to
Any rights of a guarantor (or any other person) under a
borrowing arrangement against the trustee of a superannuation fund
must be limited to the asset. This change, although consistent with
the generally accepted industry practice, is welcome as it will
alleviate the uncertainty surrounding the use of guarantees in
superannuation borrowing arrangements.
Provision is made which acknowledges that the asset can be
subject to a charge in connection with the borrowing (although the
wording is confusing, and may in fact go further than the
Government's apparent intention to allow charges only to secure
the actual borrowing).
The replacement asset provisions have been expanded to provide
that replacement assets are limited to replacement shares in
companies and units in unit trusts arising out of circumstances
such as takeovers, mergers, demergers, restructures, schemes of
arrangement or trustee actions. The explanatory memorandum makes it
clear that the 'replacement asset' concept is strictly
limited, excluding certain events which might have been thought to
bring about the replacement of assets within the meaning of the
previous law. These include replacement of an asset arising from an
insurance claim where the original asset was lost, replacement of
title upon a subdivision and replacement of a title to property
where there has been Government action such as resumption of part
of the property or rezoning. It is also expressly stated in the
explanatory memorandum that the buying and selling of shares does
not constitute the replacement of assets. The replacement asset
provisions are somewhat unclear in their application. It appears,
for example, that a fund which has borrowed to acquire property in
respect of which a new title has been issued (perhaps through some
Government action) would be obliged to discharge the borrowing.
This aspect may need further clarification.
The tabling of the Bill adds weight to the industry's
expectation that borrowing will continue to be available to
superannuation funds, notwithstanding the reservations expressed
recently by the Cooper Review Panel.
DLA Phillips Fox is one of the largest legal firms in
Australasia and a member of DLA Piper Group, an alliance of
independent legal practices. It is a separate and distinct legal
entity. For more information visit
This publication is intended as a first point of reference and
should not be relied on as a substitute for professional advice.
Specialist legal advice should always be sought in relation to any
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