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Refinance of an LRBA

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If you are refinancing your LRBA (within the guidelines, i.e. not borrowing more than it costs to extinguish the loan including costs etc) do you need to establish a new bare trustee and a new bare trust or only a new bare trust, or neither?  I note another answer was simply that IF you do transfer the asset to a new trust you just need to ensure that the property is not transferred to the SMSF trustee in the meantime to avoid the prohibition on super borrowing., but does not say if you have to establish a new trust arrangement and I have been unable to find any guidance on this. 

 

Thank you in advance. 

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Hi @katie27,

 

Welcome to the Community.

 

Our technical experts looked into this and they’ve advised that there is no requirement under the SISA for the establishment of a different holding trust (or trustee) for the asset under the new LRBA.

 

Section 67A of the Superannuation Industry (Supervision) Act 1993 (SISA) allows the trustee of an SMSF to borrow money to acquire a ‘single acquirable asset’ under a limited recourse borrowing arrangement (LRBA). The property acquired with the LRBA loan must be held by a holding trust with the SMSF being the beneficiary of the trust. The lender’s recourse against the SMSF trustee in case of default is limited to the holding trust asset.

 

Subparagraph 67A(1)(a)(ii) of the SISA allows refinancing of a borrowing under an arrangement if the new borrowing arrangement is over the acquirable asset from the first arrangement and no other acquirable asset. Refinancing the borrowing is entering into a new LRBA at the time of refinancing and must meet all the requirements of section 67A.

 

Thanks, NicM.

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Best answer

ATO Certified

Moderator

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Hi @katie27,

 

Welcome to the Community.

 

Our technical experts looked into this and they’ve advised that there is no requirement under the SISA for the establishment of a different holding trust (or trustee) for the asset under the new LRBA.

 

Section 67A of the Superannuation Industry (Supervision) Act 1993 (SISA) allows the trustee of an SMSF to borrow money to acquire a ‘single acquirable asset’ under a limited recourse borrowing arrangement (LRBA). The property acquired with the LRBA loan must be held by a holding trust with the SMSF being the beneficiary of the trust. The lender’s recourse against the SMSF trustee in case of default is limited to the holding trust asset.

 

Subparagraph 67A(1)(a)(ii) of the SISA allows refinancing of a borrowing under an arrangement if the new borrowing arrangement is over the acquirable asset from the first arrangement and no other acquirable asset. Refinancing the borrowing is entering into a new LRBA at the time of refinancing and must meet all the requirements of section 67A.

 

Thanks, NicM.

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