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  • Special in-house asset rules

    The holding trust in most LRBAs is, under the super law, a related trust to the SMSF investor, because the SMSF has an entitlement to the majority of the income from the trust.

    The interest of the SMSF in the holding trust represents an investment in that trust for the purposes of the in-house asset rules. However, the in-house asset rules have an exception (specifically in subsections 71(8) and 71(9) of the SISA to ensure that the SMSF's investment in the holding trust is not an in-house asset, provided all the following conditions are satisfied:

    • the holding trust is part of an arrangement that meets all of the requirements of the super law in connection with a borrowing by the SMSF
    • the only property of the trust under the arrangement is the acquirable asset (referred to as the original asset or its replacement under the pre-amendment law)
    • the asset held by the holding trust would not be an in-house asset of the SMSF if the SMSF owned the asset directly.

    See also:

    Exception to the definition of an in-house asset

    A holding trust trustee can continue to hold the property for the investor after the borrowing has ended.

    A legislative instrument was registered on 10 April 2014 to address concerns about the application of the in-house asset exemption provided by subsection 71(8) of SISA.

    The legislative instrument provides an exception to the definition of an ‘in-house asset’ during the following times:

    • at the beginning of an LRBA where a borrowing has not yet begun or the related trust does not yet hold the acquirable asset; and
    • where the asset continues to be held in the related trust after the borrowing has been repaid.

    The instrument is taken to have started on 24 September 2007 which aligns with the date of effect of the LRBA provisions. This ensures SMSFs that entered into LRBAs prior to the making of this instrument are not disadvantaged as compared with those that enter into LRBAs after the making of this instrument.

    See also:

    • SMSFR 2009/4 Self-Managed Superannuation Funds: the meaning of 'asset', 'loan', 'investment in', 'lease' and 'lease arrangement' in the definition of an 'in-house asset' in the Superannuation Industry (Supervision) Act 1993
    • SPR 2014/1 Self Managed Superannuation Funds (Limited Recourse Borrowing Arrangements – In-house Asset Exclusion) Determination 2014
      Last modified: 10 Oct 2018QC 20439