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Umesh Manek

Nov 08, 2023

Excess Loan Repayment Withdrawals

in SMSF Technical Forum

In FY2019, Self-Managed Superannuation Fund (SMSF).acquired a property through a Limited Recourse Borrowing Arrangement (LRBA).

During FY2021 and FY2022, SMSF made additional payments, exceeding the minimum monthly payment obligations as stipulated in the lending agreement. SMSF is now interested in withdrawing the excess funds repaid to explore alternative investment opportunities. Lender is agree to release the excess repayment subject to declaration that money will not be utilised for improvements.

Plesase provide your guidance on whether SMSF can withdraw the surplus amount from loan without violating compliance regulations.

1 comment

Comments (1)

THE AUDITORS INSTITUTE

Nov 09, 2023

Best Answer

Hi Umesh

Normally there is no ability for a SMSF to increase its liability once it has repaid an amount. It will not meet the reasons to be able to borrow under section 67A of SIS.

As an example section 67A allows a SMSF to refinance a LRBA for up to the existing loan amount but there is no ability to be able to borrow money that has been repaid to use that money for other investment opportunities.

The ATO gives guidance on when you can borrow & they state at:

https://www.ato.gov.au/Super/Self-managed-super-funds/In-detail/SMSF-resources/SMSF-technical/Limited-recourse-borrowing-arrangements---questions-and-answers/?page=4#Loan_and_lender_compliance_issues

"Arrangements entered into on or after 7 July 2010

Drawdowns for capital improvements are not allowed for arrangements entered into on or after 7 July 2010. The super law applying to these arrangements specifically prohibits borrowing to make improvements under subparagraph 67A(1)(a)(i) of the SISA.

However, drawdowns to capitalise interest, maintain the asset and meet other costs of the arrangement continue to be allowed."

Thanks

The Auditors Institute