THE AUDITORS INSTITUTE | FORUM

Archived Forums

When you become a member of The Auditors Institute, you immediately gain access to expertise, advocacy for your profession and peace of mind.

Ask a question in our members-only forum or use the search function to find prior technical discussions on your topic. You can expect a response within 24-48hrs.

Want to become a Member?

Join Now

Already a Member?

Disclaimer

The forum is made available by The Auditors Institute Ltd for the benefit of it’s members only, and its primary purpose is to facilitate education, training, and discussion between members. The information and answers provided within the forum are of a general nature and do not consider any specific circumstances, objectives, financial situation or needs related to the matter/s raised. The responses should not be construed as financial advice, and each Member should seek their own professional advice before making any decisions. The Auditors Institute Ltd and its representatives are not responsible for any actions taken based on the information provided in the forum.

To see this working, head to your live site.

Jun 29, 2023

LRBA Query

in SMSF Technical Forum

A client has proposed the following:

"The owner of the hangar that I’m currently renting has offered me the following proposal.

$150,000 for his share in the airport. (1/20th of the airport)

$85,000 for his hangar.

Total price $235,000 of which the owner wants $90,000 upfront and he is prepared to offer Vendor finance for the balance at home loan rates.

I need to know if we can do this via my SMSF.

My company would then rent the hangar from my SMSF."

My thoughts are:

The hangar may need to be purchased outright then an LRBA be on the share in the airport only.
The gearing would be near 100% but it is an unrelated party?
Interest rate may also be deemed no arm's length but again it is an unrelated party?
Can a mortgage be registered though on the share?

This is rather complex, wondering others thoughts but ultimately I may direct them to obtain specialist advice.

There will also be valuation issues ongoign I dare say with these assets, the share in particular.

1 comment

Comments (1)

Commenting on this post isn't available anymore. Contact the site owner for more info.

THE AUDITORS INSTITUTE

Jun 30, 2023

Hi CV

Agree they should get specialist advice as there are a number of issues.

Re the LRBA on the hanger then as per the ATO guidlines in PCG 2016/5 the ATO advises what terms would be consistent with an arm's length dealing.

If the terms are outside of the ranges as per the guidline PCG 2016/5 paragraph 4:

"If SMSF trustees have entered into an arrangement which does not meet all of the 'Safe Harbour' terms set out in this Guideline, while the trustees are unable to be assured that the Commissioner will accept the arrangement to be consistent with an arm's length dealing, it does not mean that the arrangement is deemed not to be on arm's length terms. It merely means that there is no certainty provided under this Guideline. The trustees will need to be able to otherwise demonstrate that the arrangement was entered into and maintained on terms consistent with an arm's length dealing. One example of how a trustee may demonstrate this is by maintaining evidence that shows their particular arrangement is established and maintained on terms that replicate the terms of a commercial loan that is available in the same circumstances."

It may be hard to argue that the trustees could get a loan on a commercial basis if it was 100% geared. Similarly with the interest rate the trustees would want to be able to show that they could get a similar interest rate with another lender.

Yes an LRBA can be done over shares or units in a unit trust. If a LRBA was to be considered over shares or units legal advice should be obtained.

Thanks

SMSF AAA