Thank You - appreciate this

Hi Leslie

Yes a SMSF can refinance a LRBA loan with a different lender. If the loan is refinanced the loan amount cannot be for a higher balance that what it currently is. That is the maximum amount that can be refinanced is $130,000 in your example.

A great reference is ATO Interpretative Decision ATO ID 2010/169 Self managed superannuation fund: limited recourse borrowing arrangement - refinancing

The ATO advises that a SMSF can refinance an LRBA provided:

•"the money borrowed under the refinance arrangement is applied solely for the purpose of replacing the financing arrangement for the earlier arrangement, and

•the refinanced limited recourse borrowing arrangement meets the requirements of section 67A of the SISA (if the refinancing occurred on or after 7 July 2010), and

•legal ownership of the asset is not temporarily acquired by the SMSF trustee when changing to the new arrangement."

Section 67A(1)(a)(ii) states:

"money applied to refinance a borrowing (including any accrued interest on a borrowing) to which this subsection applied (including because of section 67B) in relation to the single acquirable asset (and no other acquirable asset)"

This means that the refinanced amount can be at a maximum of the balance owing plus any accrued interest.

Thanks

SMSF AAA

Hi, a question related to the above - the first question is: Can a LRBA Loan be refinanced with a different bank for instance to get a lower interest rate? - if this is YES, the follow on question can the loan amount be different - for instance let us assume the loan amount at date of refinancing is $130 000 - can the refinanced loan amount be for $200 000 - in this way releasing some funds to make another investment - such as a deposit on a new property?

Hi Signorina

The simple answer is yes in that a related party can lend to a SMSF to purchase property under the limited recourse borrowing arrangements (LRBA) rules. The loan to the related party could then re paid back by refinancing the loan with the bank.

However, a related party loan can only occur if the LRBA rules are followed. You would also need to ensure the safe harbour rules are followed as issued by the ATO in PCG 2016/5 re the ATO's guidelines for related party LRBA's.

Given the issues involved I would recommend they get professional or legal advice if they are to consider a related party loan & the LRBA requirements.

Thanks

SMSF AAA