Industry experts have called on the Australian Taxation Office (ATO) to review the ban on self managed superannuation funds (SMSFs) using limited recourse borrowing to fund improvements to property assets.
Speaking at the Small Independent Super Funds Association conference in Melbourne, SMSF specialist executive at Cavendish Superannuation David Busoli said the ban on making improvements to property assets using limited recourse borrowing was a real problem, with members of the industry either under the impression that improvements were allowed, or making property improvements anyway and hiding it from the ATO.
Busoli told the conference of one SMSF that he was aware of that had their asset destroyed in the Brisbane floods and rebuilt it without asking the tax office first.
Even though the rebuilding of the asset qualified as an improvement, they did not tell the ATO because they knew the application would be refused and they thought they would have more luck "asking for forgiveness rather than permission", Busoli said.
One town hall gathering at which a colleague spoke was in an uproar because they were told they could not improve their assets but had already done so or were planning to, he said.
Busoli labelled the rule ridiculous.
The National Tax Liaison Group Super Technical Committee has sarcastically questioned the ATO in the past on whether it would allow limited recourse borrowing to fund the rebuilding of a property that burned down.
Cavendish had a running battle to ensure SMSFs were being compliant on limited recourse borrowing, Busoli said.
A lot of wrong ideas about limited recourse borrowing were floating around, including some involving the banks, and they could create a compliance nightmare, Busoli warned.
Many people were trying to refinance an existing asset using the limited recourse borrowing, which could only be used to acquire new assets, or were using it to acquire properties owned by a related party, he added.
