The Australian Taxation Office (ATO) has provided further clarification in relation to limited recourse borrowing arrangements for superannuation funds.
Income and Tax
The ATO has clarified that where a super fund trustee enters into a limited recourse borrowing arrangement for the purpose of purchasing an asset in accordance with the provisions of sub-section 67A of the Superannuation Industry (Supervision) Act (SIS Act) the super fund trustee will be treated as the owner of the asset for income tax purposes. This means the super fund, not the bare trustee company, will be assessed on the income earned on the asset, for example rental income, and will be able to claim all relevant deductions. It is the super fund, not the bare trustee company, which should account for any GST amounts on income and expenses.
There is no need for the holding trust to lodge an annual return with the ATO in respect of income or be registered for GST.
Non Complying Arrangements
If the arrangement does not meet the requirements of the SIS Act, then not only would the borrowing contravene the borrowing provision and place the fund at risk of being placed in non-compliant status, depending on the structure adopted, the super fund may not be the owner of the property for income tax and GST purposes.
A super fund entering into limited recourse borrowing arrangements need to do so carefully to ensure that all required provisions of the SIS Act are met and the fund is able to fully enjoy the available benefits.