Miller said on a recent webinar for Super Guardian that despite the changes to the rules on limited recourse borrowing arrangements SMSFs can still acquire residential property if they do it directly.
“As long as it’s not leased to a related party, so not acquired from, nor leased to a related party, then residential property is still a viable acquisition for a self-managed superannuation fund,” he said.
“A fund can still acquire property if it has tenants in common with a related party, that also doesn’t breach [the regulations]. You’ve got your in-house asset restriction, which says that asset can’t be leased to a related party. You’ve got section 66 that says an asset can’t be acquired from a related party, but we can still enter into tenants in common arrangements over residential property.”
He continued that an SMSF can also still invest in an ungeared trust or company.
“The core entity here can still acquire shares in, or units, in a trust, and that trust can acquire residential property. There’s no problem with still engaging under the 13.22c requirements to acquire property,” he said.
“This could be the obvious replacement from an LRBA arrangement point of view, where if the super fund doesn’t have the full funding to acquire the residential property, then the fund and another party, instead of going tenants in common, as that creates an acquisition restriction, but if acquire units in a unit trust, which then acquires the residential property. Section 66 allows for the acquisition of those units from the related party.”
Miller continued that as long as the property itself wasn’t acquired from a related party, and not leased to a related party, the fund can, over time, acquire units from the related party under the 13.22c exception.
“It is a method to be able to acquire residential property in the fund in a manner that is not direct, and that’s via the use of these unpaid 13.22c vehicles,” he explained.
“There’s never been a restriction on the ability to acquire units or borrow to acquire units in the unit trust, and that unit trust can then go off and buy residential property, still using that 13.22c exception, but actually doing it via an LRBA arrangement,” he said.
“Legislatively, that’s fine. Commercially, that’s almost impossible because no commercial lender will lend to buy units in a related trust. And if a commercial lender is not going to do it then you can’t do it as a related party loan because a related party loan has to satisfy safe harbor which doesn’t provide for units in an unrelated unit trust.”
Additionally, he said, to avoid NALI, the terms of any loan must meet those that would have been provided by a commercial lender.
“It’s a circular argument, that if there’s no commercial lender, then you can’t create terms for those circumstances,” he said.
“However, there are still opportunities that exist for people to acquire residential property. I guess there’s industry hope as well that we get to a position where we have new builds brought back into the equation.”
