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Hi
hope everyone is well here.
Just a quick question
If an SMSF owns a land outright in NSW , Can it borrow funds from members of the SMSF to build an investment property on the Land. Would it be on LRBA.
Thanks
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Thanks a lot for quickly replying to this query
Hi Dawood
The answer is no. A Fund cannot borrow funds to build a building on land that it already owns. This is due to the"acquirable asset" rule.
The Fund LRBA rules are in section 67A of SIS.
A reference is also SMSFR 2012/1 SMSFs: LRBA - application of key concepts.
Example 8 explains the rule relevant to your question:
Example 8 - house built in situ on land already owned by the SMSF
66. An SMSF owns a vacant block of land. The trustees of the SMSF want to enter into an LRBA to construct a house in situ on the block of land.
67. The house cannot be a single acquirable asset under section 67A. As the house is built in situ it does not exist as an asset separate from the land that can be held on separate trust. Money borrowed to build the house effectively results in the acquisition of services and building materials. These acquisitions would not satisfy the LRBA requirement that the arrangement involves the acquisition of a single acquirable asset.
Thanks
SMSF AAA