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Lacey Nicholson

Dec 15, 2021

LRBA strategy

in SMSF Technical Forum

I have been asked for my view on the legality / appropriateness for SMSF investments using a company that is offering to provide what appears to be an off the plan contract to SMSFs that is acting as an intermediary between the fund and the builder. ie The SMSF selects the land, investment and builder, and negotiates the purchase price. The company then enters into a One Part Contract with the SMSF, where the SMSF pays a 35% deposit, Buys the land selected by the SMSF, Pays the land tax, Contracts and pays the builder selected by the SMSF.

What are the compliance issues & what supporting documents would be needed?

3 answers0 replies

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THE AUDITORS INSTITUTE

Dec 16, 2021

Hi Lacey

Thanks.

The proposal is that the SMSF enters into 1 contract to purchase land and a completed property. It is One Contract Property that enters into the contract with the builder and not the SMSF. On that basis the Fund would normally comply with the "single acquirable asset" rule. What is being proposed is consistent with the ATO Ruling advised as per example 10:

"Example 10 – acquisition of a yet to be constructed house on land using borrowings 71. The trustees of an SMSF want to enter into a contract to acquire, as a ‘package’, land with a yet to be constructed house on it and to fund the acquisition using borrowings under an LRBA. As the contractual arrangement is for the acquisition of land with a completed house on it, and settlement occurs once construction of the house is finished, the deposit and the payment on settlement can be funded under a single LRBA."

The advice provided refers to the SIS rules and advises that this is not legal advice and clients should seek their own legal advice.

I would recommend that when the bare trust deed is prepared that the lawyer who prepares this reviews the contract provided by One Contract Property to ensure that the purchase / contract will comply with the SIS requirements re the LRBA rules.

Thanks

SMSF AAA