On 10 March 2010, the government released information dealing
with superannuation funds which borrow money or invest in
The announcements dealt with two issues:
to classify the sale of instalment warrants to superannuation
funds as a financial product
to make it clear that the tax consequences of a transaction
undertaken by a fund using a trustee to hold the asset belong to
the fund and not the property trustee.
Neither have a significant impact on the ability of SMSFs to
purchase real estate and borrow to assist that purchase.
Classification as a "financial product"
Click here to see the press release made by The Hon Chris Bowen
(Minister for Financial Services, Superannuation & Corporate
Law) regarding proposed changes to the Superannuation Industry
(Supervision) Act (SIS Act).
The proposal is to classify "certain borrowing arrangements
by superannuation funds" as "financial products". As
result these types of borrowing arrangements would be regulated by
the Corporations Act.
It appears that this may relate to structured and packaged
products sold to superannuation funds and often styled as an
instalment warrant rather than a direct borrowing. We consider that
these instalment warrant arrangements have always been correctly
classified as "financial products" and it would seem that
these changes will merely clarify what has always been the true
legal classification of these products.
In other words, we consider it is likely that this proposal does
not extend to 'private' transactions where an SMSF borrows
to purchase real estate secured by a mortgage granted by the
property trustee and where the property trustee is established by
These 'private' transactions should not be complicated
by additional regulation, and should be able to be set up by
qualified advisors such as accountants and lawyers. Finance brokers
(who will be subject to national regulation from 1 July 2010)
should continue to be able to arrange finance for these
transactions. We propose to lobby to make it clear that the
proposal does not extend to 'private' arrangements.
Even if the new proposals do impact on 'private'
arrangements, any change will not be retrospective and will not
commence until three months after the legislation is passed. So, if
there is a need to change the marketing and disclosure
arrangements, there will be ample time to make the necessary
Tax treatments of instalment warrants
In addition the Assistant Treasurer, the Hon Nick Sherry today
announced that the Government proposes to amend the tax law to
confirm the practice of treating the investor in an instalment
warrant over a single exchange traded security in a company, trust
or stapled entity as the owner of the listed security for income
It was also announced that a superannuation trustee who enters
into a non-recourse borrowing arrangement for the purpose of
purchasing an asset, as permitted under subsection 67(4A) of the
SIS Act, will be treated as the owner of the asset for income tax
purposes. This is broadly consistent with the current
"look-through" approach for bare trust arrangements (see,
for example, Interpretative Decision ATO ID 2003/804). The proposal
seems to extend this current treatment to borrowing arrangements
where the property trustee under the arrangement has a more active
role in managing the asset and should resolve any residual debate
on this issue.
It is proposed that the measures will confirm that the SMSF
trustee will be assessed on any income earned on the underlying
asset and the SMSF trustee will be able to claim any relevant
deductions in these circumstances. This falls in line with the
current understanding for 'private' real estate investments
by superannuation funds.
The government has announced that these tax amendments will take
effect from the 2007–2008 tax year (ie from the
introduction of section 67(4A) of the SIS Act.
The income tax treatment of any property lease incentive will vary, depending on the nature of the inducement provided.
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