{"id":5248,"date":"2014-08-13T12:49:08","date_gmt":"2014-08-13T02:49:08","guid":{"rendered":"http:\/\/www.dbalawyers.com.au\/?p=5248"},"modified":"2014-09-09T12:31:33","modified_gmt":"2014-09-09T02:31:33","slug":"unwinding-smsf-limited-recourse-borrowing-arrangement","status":"publish","type":"post","link":"https:\/\/www.dbalawyers.com.au\/announcements\/unwinding-smsf-limited-recourse-borrowing-arrangement\/","title":{"rendered":"Unwinding an SMSF limited recourse borrowing arrangement"},"content":{"rendered":"
\"Unwinding-an-SMSF-limited-recourse-borrowing-arrangement\"<\/div>\n

Introduction<\/h3>\n

As certain SMSF limited recourse borrowing arrangements<\/a> reach completion, many are unsure how the arrangement should finish. There are a number of steps involved in weighing up options and strategy, as well as in documenting and carrying out the process.<\/p>\n

Note that this article deals with the situation of where a borrowing has been paid off and the asset is being retained within the SMSF. If the situation is different (eg, the SMSF trustee is selling the asset to a third party), different considerations will apply.<\/p>\n

When is a limited recourse borrowing arrangement ready to be unwound?<\/h3>\n

A core feature of a limited recourse borrowing arrangement (\u2018LRBA\u2019) is that the SMSF trustee borrows to acquire an asset that is held on trust. The trust is often referred to as a \u2018bare trust\u2019. While not all such trusts are technically \u2018bare trusts\u2019, the term \u2018bare trust\u2019 will be used in this article for the sake of simplicity.<\/p>\n

Some further core features of LRBAs are that the SMSF trustee has a beneficial interest in the asset, and has the right acquire legal ownership after making one or more payments. An LRBA is therefore completed when the borrowing of money is extinguished (that is, when the loan is paid off). Once this happens, there is no borrowing being maintained. What is left is an asset being held on trust for the trustee.<\/p>\n

At this stage, there is a choice as to whether to transfer the asset into the name of the SMSF trustee.<\/p>\n

What costs are involved in transferring to the SMSF trustee?<\/h3>\n

There are likely to be transaction and administrative costs in transferring the asset to the SMSF trustee. If the asset is real estate, there will be a cost in conveyancing.<\/p>\n

Then there is the question of whether stamp duty is payable on any transfer to the SMSF trustee. If the initial transaction was handled and documented properly (including the payment of the deposit), there is a stamp duty exemption in most jurisdictions. While some might think the stamp duty exemption should be a simple matter because the SMSF trustee has a \u2018beneficial interest\u2019 in the asset, the provisions in each jurisdiction are usually more complex in their requirements. Most exemptions have substantial procedures associated with them (eg, statutory declarations, documentary evidence, etc). It is recommended that SMSF trustees and advisers speak to a stamp duty expert in the jurisdiction in advance of any transfer.<\/p>\n

Is it better to transfer to the SMSF trustee?<\/h3>\n

On one hand, because of an ATO legislative instrument<\/a> that commenced in April this year, the asset can be left in the bare trust without giving rise to an in-house asset. This will probably mean a saving on costs and hassle in the short and medium term.<\/p>\n

However, if the end goal is to transfer the asset in-specie to the members (say, upon the death of a member), it may be better to transfer to the SMSF trustee sooner. Given the documents needed for a stamp duty exemption, possibly waiting many years to do this could mean the crucial evidence is lost, forgotten or difficult to access.<\/p>\n

Additionally, the conservative view of the current law is that if the SMSF trustee wants to change or improve the asset such that it becomes a fundamentally different asset (for example, by subdividing land or by converting residential land into commercial), the asset needs to first be transferred to the SMSF trustee.<\/p>\n

How is the arrangement unwound?<\/h3>\n

If it is desired or necessary to transfer to the SMSF trustee, documentary evidence should be obtained from the lender than the loan is no longer outstanding. Any mortgage should also be removed.<\/p>\n

Then, \u2018getting out\u2019 of the bare trust will in many ways mirror how the asset \u2018got in\u2019. That is, the procedure will depend on what the bare trust document (typically a deed) states. If there a special procedure to follow in order to transfer the asset out, that procedure should be adhered to. Otherwise, the bare trust \u2018rules\u2019 may essentially say that the bare trustee will act on the direction of the SMSF trustee. If this is the case, the relevant documents may be a resolution to wind up the arrangement and transfer the asset, a direction to the bare trustee to do this and a resolution by the bare trustee to comply with the direction. Care should be taken to properly document this process, especially so that any audit shows that the relevant requirements have been satisfied.<\/p>\n

A lawyer will typically be needed to handle conveyancing (if the asset is real estate).<\/p>\n

Ideally, most LRBAs will have had the bare trust being treated as \u2018part of the SMSF\u2019 for tax purposes. In this way, any transfer to the SMSF trustee is simply a transfer \u2018within\u2019 a tax entity (the SMSF). This allows the transfer to be a non-event under the capital gains tax provisions (see, for example, Income Tax Assessment Act 1997<\/em> (Cth)<\/a> ss 104-55(1)<\/a> (see note), 104-60(1)<\/a> (see note) and 960-100(2)<\/a> (see note 2)).<\/p>\n

On the other hand, the above process may be significantly more complex if the \u2018bare trust\u2019 itself has been treated as a tax entity. Expert tax advice is recommended in this case.<\/p>\n

Additionally, once the asset is transferred, related documents such as leases may have to be updated to reflect the new legal owner of the property (the SMSF trustee).<\/p>\n

* * *<\/p>\n

This article is for general information only and should not be relied upon without first seeking advice from an appropriately qualified professional. <\/p>\n

Note: DBA Lawyers hold SMSF CPD training at venues all around Australia and online. For more details or to register, visit www.dbanetwork.com.au<\/a> or call Marie on 03 9092 9400.<\/p>\n

\"Print<\/a><\/div>\n","protected":false},"excerpt":{"rendered":"

As certain SMSF limited recourse borrowing arrangements reach completion, many are unsure how the arrangement should finish. There are a number of steps involved in weighing up options and strategy, as well as in documenting and carrying out the process. Note that this article deals with the situation of where a borrowing has been [read more<\/a>]<\/p>\n","protected":false},"author":22,"featured_media":5249,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[24,31,33,35],"tags":[],"ppma_author":[138],"yoast_head":"\nUnwinding an SMSF limited recourse borrowing arrangement | Leading SMSF Law Firm<\/title>\n<meta name=\"description\" content=\"As an SMSF limited recourse borrowing comes to an end, it is important to consider what options exist, what plans exist for the asset and the proper procedure in unwinding.\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.dbalawyers.com.au\/announcements\/unwinding-smsf-limited-recourse-borrowing-arrangement\/\" \/>\n<meta name=\"twitter:label1\" content=\"Written by\" \/>\n\t<meta name=\"twitter:data1\" content=\"Daniel Butler\" \/>\n\t<meta name=\"twitter:label2\" content=\"Est. reading time\" \/>\n\t<meta name=\"twitter:data2\" content=\"5 minutes\" \/>\n<script type=\"application\/ld+json\" class=\"yoast-schema-graph\">{\"@context\":\"https:\/\/schema.org\",\"@graph\":[{\"@type\":\"WebPage\",\"@id\":\"https:\/\/www.dbalawyers.com.au\/announcements\/unwinding-smsf-limited-recourse-borrowing-arrangement\/\",\"url\":\"https:\/\/www.dbalawyers.com.au\/announcements\/unwinding-smsf-limited-recourse-borrowing-arrangement\/\",\"name\":\"Unwinding an SMSF limited recourse borrowing arrangement | Leading SMSF Law Firm\",\"isPartOf\":{\"@id\":\"https:\/\/www.dbalawyers.com.au\/#website\"},\"primaryImageOfPage\":{\"@id\":\"https:\/\/www.dbalawyers.com.au\/announcements\/unwinding-smsf-limited-recourse-borrowing-arrangement\/#primaryimage\"},\"image\":{\"@id\":\"https:\/\/www.dbalawyers.com.au\/announcements\/unwinding-smsf-limited-recourse-borrowing-arrangement\/#primaryimage\"},\"thumbnailUrl\":\"https:\/\/www.dbalawyers.com.au\/wp-content\/uploads\/2014\/08\/Unwinding-an-SMSF-limited-recourse-borrowing-arrangement.jpg\",\"datePublished\":\"2014-08-13T02:49:08+00:00\",\"dateModified\":\"2014-09-09T02:31:33+00:00\",\"author\":{\"@id\":\"https:\/\/www.dbalawyers.com.au\/#\/schema\/person\/51e17c75fbc6987d17bcc7c68f6879c3\"},\"description\":\"As an SMSF limited recourse borrowing comes to an end, it is important to consider what options exist, what plans exist for the asset and the proper procedure in unwinding.\",\"inLanguage\":\"en-US\",\"potentialAction\":[{\"@type\":\"ReadAction\",\"target\":[\"https:\/\/www.dbalawyers.com.au\/announcements\/unwinding-smsf-limited-recourse-borrowing-arrangement\/\"]}]},{\"@type\":\"ImageObject\",\"inLanguage\":\"en-US\",\"@id\":\"https:\/\/www.dbalawyers.com.au\/announcements\/unwinding-smsf-limited-recourse-borrowing-arrangement\/#primaryimage\",\"url\":\"https:\/\/www.dbalawyers.com.au\/wp-content\/uploads\/2014\/08\/Unwinding-an-SMSF-limited-recourse-borrowing-arrangement.jpg\",\"contentUrl\":\"https:\/\/www.dbalawyers.com.au\/wp-content\/uploads\/2014\/08\/Unwinding-an-SMSF-limited-recourse-borrowing-arrangement.jpg\",\"width\":300,\"height\":213},{\"@type\":\"WebSite\",\"@id\":\"https:\/\/www.dbalawyers.com.au\/#website\",\"url\":\"https:\/\/www.dbalawyers.com.au\/\",\"name\":\"DBA Lawyers\",\"description\":\"Leading SMSF Law Firm\",\"potentialAction\":[{\"@type\":\"SearchAction\",\"target\":{\"@type\":\"EntryPoint\",\"urlTemplate\":\"https:\/\/www.dbalawyers.com.au\/?s={search_term_string}\"},\"query-input\":\"required name=search_term_string\"}],\"inLanguage\":\"en-US\"},{\"@type\":\"Person\",\"@id\":\"https:\/\/www.dbalawyers.com.au\/#\/schema\/person\/51e17c75fbc6987d17bcc7c68f6879c3\",\"name\":\"Daniel Butler\",\"image\":{\"@type\":\"ImageObject\",\"inLanguage\":\"en-US\",\"@id\":\"https:\/\/www.dbalawyers.com.au\/#\/schema\/person\/image\/2169bc3da061d4bd5f02e1a67c0df79e\",\"url\":\"https:\/\/secure.gravatar.com\/avatar\/d78c2b0f9e09daf27cca87ab8a52fe85?s=96&d=mm&r=g\",\"contentUrl\":\"https:\/\/secure.gravatar.com\/avatar\/d78c2b0f9e09daf27cca87ab8a52fe85?s=96&d=mm&r=g\",\"caption\":\"Daniel Butler\"},\"description\":\"Dan is recognised as one of Australia's leading SMSF lawyers complemented by his taxation and commercial expertise. 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