The correct tax treatment of income from assets held by
the trustee of a trust for an SMSF under a limited recourse
borrowing arrangement (LRBA) has been unclear. Some years ago the
Government announced it would introduce legislation to provide a
'look through' approach for income tax purposes, and the
draft legislation was finally released in January 2015 (Tax and
Superannuation Laws Amendment (2015 Measures No. 2) Bill 2015:
The draft legislation provides that, for income tax purposes, an
asset is treated as being the superannuation fund's asset, and
not an asset of the LRBA trust. This means the LRBA trust is
ignored for income tax purposes and all assessable income
(including capital gains) is included in the tax return for the
The proposed rules apply to bare trusts set up for SMSF
borrowing as well as some other arrangements, and clarify the
position that has been largely taken in the industry.
The legislation also specifically provides that the original
limited recourse borrowing arrangements established under the now
repealed section 67(4A) are to be taxed in the same way.
If you are looking to rely on the 'look through'
provisions, you must ensure that your LRBA complies with the
Superannuation Industry (Supervision) Act.
The proposed legislation is a step forward; however it fails to
deal with the treatment for GST purposes, which is a major area of
concern in a number of LRBA transactions. Unless this is
appropriately dealt with in the final legislation, extreme care
must be taken to ensure that GST is dealt with properly in an LRBA.
In particular, our concern is that GSTR 2008/3 is not wide enough
to apply to all LRBAs.
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The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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Consultation on the proposal paper is open until 15 March 2017 and these proposals will become law sometime in 2017.
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