Daniel Cole
Managing Director
Commercial and Succession Planning
The Federal Government today announced further changes impacting residential property investors by declaring that self-managed superannuation funds (SMSF) will no longer be permitted to acquire residential property that are subject to borrowings by banning SMSF’s from borrowing to purchase residential property.
Prior to this announcement the Superannuation Industry (Supervision) Act 1993 (Cth) (SISA) permitted SMSF’s to acquire residential property that was subject to borrowings on the basis that the property was a completed asset, acquired on an arm’s length basis from a non-related party and the security held by the lender in connection with the borrowings was limited only to the residential property itself, safeguarding all other assets held in the SMSF, this investment activity known as a limited recourse borrowing arrangement.
An SMSF’s could invest in residential property which was in part funded by borrowed funds, the balance by cash from the superannuation fund, conditional upon the property being used to derive leasing income from an unrelated tenant.
Existing limited recourse borrowing arrangements already in place over residential property in SMSF’s is permitted to remain in place including also purchases under contract but not yet settled, however from today’s announcements no further such acquisitions by SMSF’s, which are to be subject to borrowings, will be permitted to occur.
In relation to non-residential real estate, limited recourse borrowing arrangements are permitted and are also commonly used by investors and business owners to own commercial and industrial property through their SMSF’s which are subject to borrowings to support retirement savings, today’s announcement allows SMSF’s to continue this strategy into the future, banning only residential limited recourse borrowing arrangements.
