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Hello,
An accountant client of mine has asked a question regarding an SMSF that is looking to purchase an additional 1/3 share of a farm using a LRBA, where the SMSF already owns 1/3 outright. I cannot think of any restrictions by SIS for the fund to own multiple shares of the farm (one in fund name and the other in the bare trustee name), but as I have not seen this arrangement before, would like to ensure that there are no SISA restrictions relating to s67 in particular. Thank you for your help.
Is the property currently held in a structure ? i.e. Company or Unit Trust
I agree with both points of view. My understanding of the evidence required to support the commerciality of a RP loan under an LRBA requires an offer from a lender.
Hi Stephanie
I have not come across this before and assume it will be possible in that is similar to 2 parties each owning a share of a property (as tenants in common). The SMSF will own 1 part of the property directly via its trustee and the other part via a bare trust with a LRBA in place.
My understanding is that a SMSF can invest as tenants in common and acquire an additional share of a property under a LRBA.
It will be difficult as the SMSF needs to ensure that their first part of the property is not used as security in relation to the new part of the property. I expect that it will be very difficult to get an unrelated third party to do the lending as they will want to take security over the whole property.
I expect lenders will not like the arrangement given the legal issues noted above. If other members have experience with this issue please let the forum know.
It may be possible to do it via a related party LRBA. My concern would be does the related party lender meet the safe harbour requirements if it is likely that an unrelated lender would not allow such a loan.
If the SMSF is to consider it further they need legal advice.
Thanks
SMSF AAA