Taxpayer Alerts
are intended to be an "early warning" of significant new and emerging
tax planning issues or arrangements that the ATO has under risk
assessment.
Taxpayer Alerts will provide information that is in the interests of
an open tax administration to taxpayers. Taxpayer Alerts are written
principally for taxpayers and their advisers and they also serve to
inform ATO officers of new and emerging tax planning issues. Not all
potential tax planning issues that the ATO has under risk assessment
will be the subject of a Taxpayer Alert, and some arrangements that
are the subject of a Taxpayer Alert may on further examination be
found not to be of concern to the ATO.
Taxpayer Alerts will give the title of the issue (which may be a
scheme, arrangement or particular transaction), briefly describe the
issue and will highlight the features which the ATO considers give
rise to taxation and superannuation regulatory issues. These issues
will generally require more detailed analysis to provide an ATO view
to taxpayers.
The developers and marketers of an arrangement which is the subject of
a Taxpayer Alert should provide the full facts of the arrangement to
the ATO to enable the ATO to finalise its view.
Taxpayers who have entered into or are contemplating entering into an
arrangement similar to that described in this Taxpayer Alert might
obtain their own advice or contact the ATO to seek guidance in
relation to the superannuation regulatory issues covered in the Alert.
This Taxpayer Alert is issued under the authority of the Commissioner
This
Taxpayer Alert is concerned with arrangements under which the trustee
of a self managed superannuation fund (SMSF) enters into certain
limited-recourse borrowings, which may not meet the conditions in
subsection 67 (4A) and/or breach other provisions of the
Superannuation Industry (Supervision) Act 1993 (SIS Act), as well
as related superannuation rules.
This
Taxpayer Alert does not deal with taxation issues other than those
relating to the application of the superannuation law. |
DESCRIPTION
The Alert
applies to arrangements which have the following features:
1. The
trustee of the SMSF ("the trustee") borrows money to acquire an asset.
2. The
asset acquired (or any replacement asset) is held on trust so that the
trustee acquires a beneficial interest in it.
3. The
legal interest in the asset (or any replacement) is held by the trust as
security for the borrowed money.
4. The
trustee has the right to acquire legal ownership of the asset (or any
replacement) by making one or more payments after acquiring the beneficial
interest.
5. The
borrowing is of a limited-recourse nature, noting particularly that any
recourse that the lender has under the arrangement against the trustee
must be limited to rights relating to the asset acquired (or any
replacement). In other words, the lender is able to recover monies where
there is a default on the borrowing by repossessing or disposing of the
asset acquired (or any replacement), but cannot recover such monies
through recourse to the SMSF's other assets.
6. The
arrangement has one or more of the following features:
(a) The
interest rate for the borrowing is zero or less than a commercial rate,
particularly where the lender is a related party;
(b) The
interest rate for the borrowing exceeds a commercial rate, particularly
where the lender is a related party;
(c)
Interest on the borrowing is able to be capitalised;
(d) A
personal guarantee for the borrowing is given by a third party,
particularly where the guarantee is given by a member or a related party
of the SMSF;
(e) The
asset acquired (or any replacement) is one that a trustee is prohibited
from acquiring under the SIS Act or any other law, or under the SMSF's
governing rules (for example, acquiring residential property, which is not
business real property, from a related party).
|
FEATURES WHICH
CONCERN US
The Tax Office
considers that arrangements which exhibit one or more of the features
outlined in paragraph 6 above may give rise to taxation and superannuation
regulatory issues, including whether:
1.
monies advanced by a member or related party at zero or less than a
commercial rate of interest could be characterised as a contribution to
the SMSF. This may result in the trustee/member having to pay excess
non-concessional contributions tax under Division 292 of the Income Tax
Assessment Act 1997;
2.
monies advanced by a member or related party at greater than a commercial
interest rate of interest may result in:
a) a
breach of the sole purpose test outlined in section 62 of the SIS Act, on
the basis that the excessive interest rate may mean that the SMSF is not
being maintained solely for the purpose of providing superannuation
benefits, and/or
b) the
trustee breaching paragraph 65(1)(b)of the SIS Act, which prohibits the
trustee from giving financial assistance to a member of the SMSF or to a
relative of such a member using the resources of the SMSF;
3.
interest capitalised may result in the arrangement failing to meet the
requirement that the money borrowed is or has been applied for the
acquisition of an asset under paragraph 67(4A)(a) of the SIS Act;
4. a
personal guarantee of the type outlined in paragraph 6(d) above may result
in recourse being made to the assets of the SMSF other than the asset
acquired {or any replacement) in the event that the guarantee is enforced
against the trustee as the principal debtor, contrary to the intent that
the exception in subsection 67(4A) of the SIS Act only applies to limited
recourse borrowings; and
5. an
asset of the type outlined in paragraph 6(e) may result in breaches of the
SIS Act or SIS Regulations (for example, intentionally acquiring an asset
from a related party, which breaches subsection 66(1) of the SIS Act).
Trustees are
also reminded that existing fund assets cannot be placed into a limited
recourse borrowing without breaching the SIS regulatory requirements.
The Australian
Taxation Office is examining these arrangements.
For further
information on the Tax Office's current views regarding the exception
provided to certain limited-recourse borrowings under subsection 67(4A) of
the SIS Act refer to:
Instalment warrants
and super funds questions and answers.
Date of Issue:
4 April 2008
Date of Effect:
4 April 2008
Subject
References:
self managed superannuation fund
sole purpose
personal guarantees
limited recourse borrowings
financial assistance
borrowing
instalment warrants
Legislative
References:
Superannuation Industry (Supervision) Act 1993
62
65(1)(b)
66(1)
67(4A)
67(4A)(a)
Superannuation Industry (Supervision) Regulations 1994
Income Tax Assessment Act 1997
Division 292
Related
Practice Statements:
PS LA 2005/13 - Taxpayer Alerts
Related
Taxpayers Alerts:
None
Authorised by:
Stephanie Martin
Deputy Commissioner
Contact
Officer: Stuart Forsyth
Business Line: Superannuation
Phone: (07) 3223 9504
©Commonwealth
of Australia |
