Care needed on superannuation borrowing

Self-managed superannuation fund (SMSF) trustees should still exhibit caution with respect to borrowing within their superannuation funds, despite the citing of recent rulings by the Australian Taxation Office (ATO), according to DB Lawyers' Bryce Figot. 

Figot has used an analysis of recent developments in the superannuation sector to warn that, although limited recourse borrowing arrangements are becoming reasonably well accepted, caution still needs to be exercised, especially with respect to related party loans. 

He said that particular care needed to be taken with respect to non-arm's length income. 

"In my opinion, if an SMSF wants to engage in a related party borrowing transaction with favorable terms for the SMSF (ie, non-arm's length terms), at the very least, a private binding ruling should first be sought from the ATO," he said. 

Figot warned that it would be dangerous for SMSF trustees to rely upon other private binding rulings from the ATO. 

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"Firstly, a private ruling is a private ruling not a public ruling. Edited versions of private rulings are made public to enhance the integrity and transparency of the ATO decision-making process. They cannot be relied upon as binding the ATO for all taxpayers," he said. 

"Secondly, not all of the facts in private binding rulings are known and other facts - such as the loan-to-value ratio - could be very important." 

Originally published by SMSF Essentials.