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

Does the requirement that the asset be held on trust for the SMSF mean that the fund acquires an asset from a related party on repaying the borrowing?

It is a necessary feature of an arrangement contemplated that the SMSF be able to acquire full ownership rights over the underlying asset once the borrowing is repaid.

The holding trust which holds the asset underlying a limited recourse borrowing arrangement will generally be a related party of an SMSF investor. In these circumstances, the legal interest in the asset may be considered to be acquired from the holding trust when the borrowing is repaid. The ATO considers that, under the new laws, this would not contravene the existing prohibition on acquiring assets from related parties.

This question is different to that where the original vendor of the asset is a related party.

Sections within The asset being acquired and replacement assets

• Is an SMSF trustee allowed to acquire the underlying asset from a related party vendor?
• Does the requirement that the asset be held on trust for the SMSF mean that the fund acquires an asset from a related party on repaying the borrowing?
• Is an SMSF trustee allowed to put an existing fund asset into a limited recourse borrowing arrangement?
• Can an SMSF trustee borrow under a limited recourse borrowing arrangement to build a house on vacant land owned by the fund?
• Under the super law can cash, representing borrowed money and/or a deposit, be transferred to the holding trust trustee?
• Can the holding trust trustee operate a cash account for an arrangement entered into on or after 7 July 2010?
• Are SMSFs permitted to use a limited recourse borrowing arrangement to buy a spread of blue-chip shares or is a separate borrowing required for each shareholding?
• Can an SMSF use a limited recourse borrowing arrangement to purchase exchange traded options over shares?
• Can assets be sold and bought on behalf of the investor within the holding trust of a limited recourse borrowing arrangement?
• Can shares issued under a dividend reinvestment plan be retained in the arrangement?
• Can an SMSF trustee acquire more than one real property title under a single limited recourse borrowing arrangement?