SMSF Borrowing Update

By Daniel Butler & Claire Malone

Instalment warrant-style borrowings by SMSF trustees have experienced a surge in interest in recent months. These arrangements appear to have now become ‘mainstream’ strategies for many advisers, both direct bank and related party loans.

Advisers should stay tuned for developments in this area as we expect there will be further announcements about borrowing in 2010. Our members will recall that the ATO’s draft ruling on ‘contributions’ (TR 2009/D3) stated that amounts paid pursuant to a guarantee that supports an SMSF loan may be treated as a deemed contribution to the fund in some cases (refer to our June 2009 newsletter). This was part of a broader view expressed by the ATO that a contribution includes anything that increases the capital of the fund.

This ruling is due to be finalised early in 2010 and we understand the ATO may scale back its approach to what amounts to a ‘contribution’. This could in turn lead to a revised ATO view on guarantees.

More broadly, with the recommendations of the Cooper review into superannuation due be handed down in 2010, it is expected that the appropriateness of the borrowing laws will be examined in some form. The borrowing laws have attracted much attention since they were enacted in late 2007 and the Cooper review may focus on SMSFs specifically and whether it is appropriate for SMSFs to be allowed to borrow.

While we cannot speculate, those SMSF clients who are thinking about implementing an SMSF borrowing strategy might consider the possibility of future changes in 2010. Those who have decided to borrow may therefore benefit by locking in a borrowing arrangement prior to any announcement and ensuring they plan with flexibility in mind. Further, some flexibility may exist under a related party borrowing to allow the related party to refinance its borrowings without impacting the SMSF’s loan.

DBA provides documentation for both direct bank and related party loans. Please visit our website or contact our office for pricing and information.

Daniel Butler and Claire Malone are lawyers with DBA Lawyers Pty Ltd.

 

DBA Lawyers Pty Ltd are based in Melbourne and do SMSF seminars on a quarterly basis around Australia at 7 locations. Further information on DBA Lawyers services and seminars can be obtained from www.dbalawyers.com.au.