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Can a SMSF borrow to acquire a Tiny House (on wheels) to put on loan held? I have a client who wishes to purchase land outright but would need to borrow to acquire a tiny house (potentially more in the future). As it is a separate movable asset, is this allowable? they would then rent out the Tiny house(s) as an income producing asset(s). Thank you.
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The SMSF may borrow to purchase the land under a bearer trust scheme
Hi Ann
Thanks, a SMSF cannot borrow normally due to the rules found in section 67 of SIS.
A Fund can however borrow under a LRBA if the requirements of section 67A are followed.
A Tiny House could be purchased by a SMSF under a LRBA if the rules are followed.
An acquirable asset for a SMSF for a LRBA is defined in section 67A of SIS as:
"An asset is an acquirable asset if:
(a) the asset is not money (whether Australian currency or currency of another country); and
(b) neither this Act nor any other law prohibits the RSF trustee from acquiring the asset."
The difficulties in my view is that it will be difficult to find a lender to lend to a SMSF by taking security over the Tiny House. A related party (LRBA) loan could be considered but you would need to consider the safe harbour requirements.
If an external lender could not be obtained I am not sure if the safe harbour requirements could be met and NALI would need to be considered.
My view is that if a client wanted to purchase a Tiny House in a SMSF via a LRBA they should get legal advice or a private ruling from the ATO.
Thanks
SMSF AAA