The SMSF Association has welcomed the Australian Taxation Office’s release of guidance on the new limited recourse borrowing arrangement (LRBA) rules saying it provides some important clarification on transitional arrangements, ahead of the 10 August commencement date.
SMSF Association’s CEO Peter Burgess said the release of the web guidance was a positive first step but more practical and comprehensive guidance was needed.
“We acknowledge the ATO has moved quickly to provide guidance, especially on what it means to have “entered into an LRBA” before 10 August for the purposes of the transitional arrangements.
“The new guidance confirms that transitional relief turns on the exchange of a binding contract before 10 August. However, this certainty may come at a cost for some trustees who have already undertaken substantial steps towards a transaction and incurred significant costs but are not yet in a position to exchange contracts.
“While a binding contract test provides a clear line, it risks leaving trustees who have acted in good faith without the protection they expected.
“The guidance is also helpful in confirming that genuine off-the-plan contracts exchanged before 10 August will be protected, even where finance is approved, settlement occurs, or the LRBA is entered into after commencement.
“However, further guidance is needed on the types of post-exchange contract variations that may be significant enough to be treated as a new arrangement. Given that commercial variations commonly arise between contract exchange and settlement, greater certainty is needed on how the Commissioner will approach these situations.
“The web guidance is a useful and timely response, but these reforms have also highlighted how heavily the industry now relies on SMSFR 2009/1, which has not kept pace with modern property and business arrangements.
“We look forward to the ATO’s review of SMSFR 2009/1 and hope it also provides greater certainty on how the business real property rules will apply in practice over the life of an LRBA, particularly as commercial circumstances and property uses evolve over time.
“We urge the ATO to provide additional practical guidance as soon as possible, and we will continue working with both the ATO and Government to address unintended consequences to ensure these rules operate as intended,” Mr Burgess concluded.
Please find information about the changes to the limited recourse borrowing arrangements here