Section 67 (4A) of the SIS Act which previously permitted SMSF’s to borrow was repealed in July 2010 and replaced with a new section 67A (and other provisions) which aims to simplify the provisions allowing SMSFs to borrow to invest in limited circumstances.

The amendments to the SIS Act ensure that superannuation fund assets are protected in the event of a default on a limited recourse borrowing arrangement by ensuring that:

• the recourse of the lender and of any other person against the superannuation fund trustee for default on the borrowing is limited to rights relating to the acquirable asset;
  
• the asset within the arrangement can only be replaced in prescribed circumstances that arise from owning the original asset; and


• the borrowing is referable and identifiable only over a single asset (excluding money) or in prescribed circumstances, a collection of assets which are identical and are treated as a single asset.

New law	Current law
Explicitly defines the interpretation of acquirable asset in the singular.	While the Act refers to ‘asset’ in the singular, it is possible to interpret asset in the plural.
Ensures that the recourse of the lender or of any other person against the superannuation fund trustee for default on the borrowing is limited to rights relating to the acquirable asset.	The Act limits the rights over the original asset in terms of the direct lender and associated borrowing only.
Limits borrowing arrangements to a single asset or a collection of identical assets together treated as a single asset	Allows borrowing arrangements over multiple assets which may permit the lender to choose which assets are sold in the event of a default on the loan.
Clearly defines circumstances under which assets can be replaced.	Allows arrangements where the asset subject to the borrowing can be replaced at the discretion of the trustee or the lender.

Other sections of the SIS Act must still be complied with such as the sole-purpose test, Investment Strategy requirements, related-party acquisition rules, in-house asset rules, prohibition against charging and arm’s length dealing requirements.
The fund can borrow the money from a third party. Alternatively the fund could borrow from a related party.  For example, it can borrow from the Member (or a related party) who has funds that the Member could lend to the superannuation fund therefore enabling the capital appreciation of the asset and income to be taxed at concession rates in the fund.

The asset that is being purchased that will be beneficially owned by the superannuation fund must stand in the name of a Trustee of a trust that holds the asset on behalf of the superannuation fund. The asset cannot be held in the name of the superannuation fund and must be held by a separate Trustee for the Trustees of the superannuation fund.

We have had our lawyers prepare a complete set of documents including Trust deed/Loan Agreement and Minutes of Meeting to assist accountants who wish to take advantage of the new legislation.

The documents are suitable only where the lender (and the other parties to the documentation) are willing to use the loan agreement (and other documentation) that is included. A lender who is in the business of lending money usually requires their own documentation and is likely to have rules and requirements as to payment of fees and interest and other requirements before lending. You should not use this service without the lender’s agreement to accept these documents.

• You should consider taking independent advice from the holder of an AFS licence before making a decision on any financial product and before making any financial decisions including advice as to the cost of borrowing from a third party lender compared with the costs of borrowing from a member of the fund or other associated person or entity.
• We are not licensed to provide financial product advice;   
• Taxation is only one of the matters that must be considered when making a decision on a financial product.
• Important Notice Thrifty Corporate Services is not a legal adviser, nor does it act as a legal adviser nor is it qualified to act in any connection with the functions of a legal adviser. No person should use this service without obtaining advice from a qualified legal practioner and/or professional adviser.

Change in ordering procedure for Hybrid Trusts

From Monday 7 June 2010, the Hybrid Trust order form will be upgraded to enable you to order online. It will no longer be necessary for you to complete a hard copy order form and fax to us, saving you time, speeding up processing and removing the possibility of transcription errors.

The order form will be of the same style and can be completed in the same manner as the Unit Trust order form. You will be able to save and later retrieve an unfinished order and a sample of the Deed can be printed from the website.

We will also be introducing a DIY Print presentation at a lower price for those clients who want to receive only an electronic copy of the documents. The Slimline and Full Register presentations will continue to be available and no matter what presentation you choose, if you order online, you will receive an email of the documentation as soon as your order is processed.     

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