It Depends – Can A Limited Recourse Borrowing Trust Acquire More Than One Asset? (Video)

In this edition of It Depends, senior associate Keeghan Silcock explains whether a limited recourse borrowing arrangement bare trust can acquire more than one asset.

Under the SIS Act, a bare trust is generally limited to a single ‘acquirable asset’, an undefined term, so multiple assets usually need separate bare trusts. Exceptions include identical assets bought together, a permanent fixture spanning multiple titles and assets that must legally be dealt with together, such as an apartment and its car park.

As this test is fact specific and carries real compliance, tax and duty risks, clients should seek advice before acquiring multiple assets through an SMSF.

Video transcript

Hi, my name is Keeghan Silcock and welcome to another edition of It Depends.

Today I’ll be talking about whether my limited recourse borrowing trust can acquire more than one asset.

So, it depends.

Firstly a limited recourse borrowing trust is a special purpose trust which is established by an SMSF to acquire an asset using borrowed funds. There are a number of requirements that need to be satisfied by an LRBA to satisfy the exception from the general rule that SMSFs cannot borrow. And one of those requirements in the SIS Act is that the bare trust can only acquire a single acquirable asset using the borrowed funds.

And, what does that mean? Unfortunately, ‘single acquirable asset’ is not defined in the SIS Act.

So, I guess the starting point is that where an SMSF is looking to acquire multiple assets using borrowed funds, then multiple limited recourse borrowing bare trusts will be required to acquire each separate asset. But, there are some exceptions.

So, specifically in the SIS Act, if you have a collection of assets which are identical and of the same value, those assets, can be acquired at the same time in a single LRBA bare trust. So, the most common example of that would be listed shares of the same share class that are acquired at the same time. Those can all go into the same bare trust.

The ATO has also released an SMSF ruling 2012/1 which sets out circumstances where they will accept that multiple proprietary rights, for example, multiple blocks of land will qualify as a single acquirable asset.

And the ruling states that if there is a permanent fixture, that’s a single unified object, physical object which is situated across multiple blocks of land that is significant in value compared to the overall value of the asset, can’t be removed easily and that satisfies a number of other requirements. Then, in that case, the ATO may accept that those two blocks of land that has, for example, a factory across both of them, qualifies as a single asset, even though we’re really dealing with multiple titles, in that case.

Another exception is where we have two different assets that are required to be dealt with together under the relevant laws. So, one example we sometimes see is where you have an apartment and a car park, which is attached to that apartment in the sense that under the strata rules and the relevant laws of that particular state, those two titles for the apartment and car park need to be sold together and can’t be dealt with separately. In that case, they can qualify as a single asset and be bought together in the same LRBA bare trust.

The single acquirable asset test is really fact specific. You have to look into the type of properties which are being acquired and we commonly see some missteps made when people are looking at this test, and it can have really serious compliance issues for an SMSF, as well as tax and duty implications. So, it’s important that clients seek advice when they’re looking to buy multiple assets in one LRBA trust.

So, if you’d like any advice about this, please feel free to contact a member of our team.