Hi Noble

I have not come across this before so if other forum member's have a view that would be appreciated.

Re SIS compliance the Fund has breached based on what you have described:

1) Section 67 of SIS - Super Fund cannot borrow (subject to exceptions).

2) Section 67A & Section 67B of SIS - Super Fund must comply with the LRBA rules when borrow to acquire an asset.

In relation to rectifying the breach I would get the trustees to contact a superannuation lawyer to see if a bare trust can be established now. It may be that the only way it can be rectified is by selling the property and or by repaying the amount borrowed. The lawyer may argue that there is no ability to set up a bare trust at a later date. The trustee would also need to consider stamp duty implications of a transfer to the trustee of the bare trust. Another option is to contact the ATO re the best way to rectify the breach.

My other concern is in relation to the NALI rules as per PCG 2016/15 Income tax - arm's length terms for LRBA's:

"When a self-managed superannuation fund (SMSF) acquires an asset under a Limited Recourse Borrowing Arrangement (LRBA), 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."

If the NALI rules apply there is a risk that the income and any capital gain that is received from that property is NALI & would be taxed at 45%.

Thanks

SMSF AAA