Thanks for the question.

One of the requirements under subsection 67A(1)(c) of the SIS Act is that the trustee of the regulated superannuation fund that has entered into a limited recourse borrowing arrangement has the “right to acquire legal ownership of the acquirable asset by making one or more payments after acquiring the beneficial interest”.

Thankfully, the way this requirement is worded there is not a forced obligation to acquire the legal title of the asset once the borrowing has been repaid in full.

So, in the situation where the loan was paid off more than two years ago, the fact that the legal title has not yet been transferred to the corporate trustee of the SMSF should not be a problem.

Something that we don’t often think about, is that technically speaking, due to the legal title of an asset acquired through a limited recourse borrowing arrangement being held by a holding trust, the interest in the holding trust arrangement could potentially be an interest in an in-house asset, being an investment in a related trust.

I make mention to this, because in legislative instrument SPR 2014/1, Self-managed Superannuation Funds (Limited Recourse Borrowing Arrangements – In-house Asset Exclusion) Determination 2014, the ATO provides an exception to the definition of in-house asset, for an interest in a holding trust arrangement established for the purposes of holding the legal title to an asset for a section 67A borrowing.

Moreover, SPR 2014/1 confirms that the exception to the in-house asset rules can continue even after the borrowing has been repaid and the legal title to the asset continues to be held by the holding trust.

Something to be mindful of is that so long as the legal title is held by the holding trust (after the borrowing has been repaid), to continue to receive the benefit of being excluded from being an in-house asset under SPR 2014/1, the asset needs to be the same “single acquirable asset” that was initially held by the holding trust when the borrowing was first drawn down.

This effectively prevents any significant changes to the asset (such as subdivision or a knock-down/rebuild) whilst the legal title is held by the holding trust.


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