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Phuong Hoang Thi Ngo

Nov 17, 2022

Mortgage property under LRBA

in SMSF Technical Forum

Dear Sir/Madam,

A SMSF borrowed from members (themself) to buy property under LRBA

so they do not lodge mortgage on title of property that PCG 2016/5 also required

1/ I wondering that whether really need to lodge mortgage as lender the same members

2/ Whether this fund still breach Section 109 SISA if do not lodge mortgage as this case (The other requires are comply)

Many thanks

2 answers0 replies

Comments (2)

THE AUDITORS INSTITUTE

Nov 18, 2022

Hi Phuong

Yes if there is no mortgage over a property re a related party LRBA the Fund has not met the requirements of PCG 2016/5 that requires:

"Security - A registered mortgage over the property is required."

As a result "the non-arm's length income (NALI) provisions in section 295-550 of the Income Tax Assessment Act 1997 (ITAA 1997) may apply to ordinary or statutory income generated from the asset if the terms of the LRBA are not consistent with an arm's length dealing."

Yes, my view is that section 109 of SIS would normally be breached if there is no mortgage in place as this is what would be done in an arm's length arrangement.

Thanks

SMSF AAA

Phuong Hoang Thi Ngo

Nov 18, 2022

Replying to

Thanks a lot