The in-house asset rules
What is the purpose of the special in-house asset rule for LRBAs?
The holding trust in an LRBA will generally be a related trust of the SMSF. An investment by an SMSF in a related trust is an in-house asset of the SMSF unless an exemption applies.
The special rule ensures that an LRBA entered into by an SMSF which meets the other requirements of the super law will not automatically result in an in-house asset arising from the investment made in the holding trust. Such an investment will only be an in-house asset where the underlying asset would itself be an in-house asset of the SMSF if held directly.
Can the holding trust trustee continue to hold the property for the investor after the borrowing has ended?
Yes. 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 commenced 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.
- 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