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Peter

Sep 08, 2021

Trade creditor or borrowings

in SMSF Technical Forum

A fund has acquired an asset (solar power) from Origin Energy for $10,000. Instead of paying up front, the payments are to occur over 24 monthly instalments. The fund has taken up the asset at balance date and holds a liability for the remaining instalments to be paid. The supporting documents indicate that where an instalment is missed, the balance of repayments is payable. Further debt collection may result.

Would this situation reflect a trade creditor despite the duration of time in which payments are to occur? Or may the payment arrangement be considered borrowings and contravene section 67?

2 comments

Comments (2)

Peter

Sep 08, 2021

Thanks for the clarification. The asset is a capital improvement on a rental property and ownership appears to have been taken at the commencement of the payment arrangement.

Sounds as though it constitutes a borrowing.

THE AUDITORS INSTITUTE

Sep 08, 2021

Hi Peter

Is the asset being acquired solar panels that are to be rented out?

"Borrow" is not defined in the SIS legislation however your example appears to be a borrowing as the Fund has received an asset and is paying for it over a period of time. If it is a borrowing it would be a breach of section 67 assuming the limited recourse borrowing arrangements have not been complied with.

If the arrangement was under an instalment contract where the Fund does not take ownership of the asset until all the instalments have been paid then it would normally not be a borrowing but a creditor.

Thanks

SMSF AAA