Limited recourse borrowing arrangements by self-managed super funds - questions and answers

Is every variation to the terms of a limited recourse borrowing regarded as a refinancing?

No. The question is whether a variation to the contract of borrowing led to the extinguishment of the previous borrowing and the creation instead of a new and different borrowing (a refinancing). This depends upon the nature and extent of the variation and the intention of the parties.

Example: Extension of borrowing

Suppose a borrowing is extended by a variation to the terms of a contract. An agreement to extend the period of the borrowing could be so inconsistent with the original agreement that it results in a new contract for borrowing. Some relevant factors are:

• whether the original loan agreement provided for the parties to agree to extend the term
• the period of the extension in relation to the period of the original loan
• whether other terms of the loan were changed by the later agreement.

In Roberts v I.A.C (Finance) Pty Ltd (1967) VR 231, the parties agreed to extend a three-year borrowing for a further two months. It was held the extension was not totally inconsistent with the terms of the original agreement as the variation left the terms and conditions of the original agreement in intact, except to the limited extent that the due date was extended by two months. As the contract was modified to a limited extent, the rights and obligations of the parties were not affected by the variation. In these circumstances, the loan extension did not discharge the original obligation to pay and create a new obligation to pay in its place.

Sections within The arrangement and refinancing

• Are only marketed instalment warrant products allowable for SMSFs under the limited recourse borrowing rules?
• Are only instalment warrant investments over listed securities allowable for SMSFs under the limited recourse borrowing rules?
• What changes to a borrowing or other attributes of a limited recourse borrowing arrangement result in a new arrangement for the purposes of the super law?
• Can an SMSF trustee refinance a limited recourse borrowing without contravening the super law?
• Is every variation to the terms of a limited recourse borrowing regarded as a refinancing?