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Feb 08, 2023

Edited: Feb 08, 2023

Two LRBA Loans on one property.

in SMSF Technical Forum

Can a SMSF property have two loans ?

One loan from bank and second from related or unrelated party ?

Both loans have LRBA terms and proper Loan Agreements.

If yes are both loans required to be registered on the title and will it require two bare trust deed or one is enough ?

2 answers0 replies

Comments (2)

THE AUDITORS INSTITUTE

Feb 08, 2023

Hi SP

Yes a SMSF could have a property with 2 loans under a LRBA (if the SIS rules are followed).

My view is 1 bare trust will be sufficient given the lender or lenders does not sign the bare trust deed. A bare trust is required for each "single acquirable asset".

Re the registration of the mortgage it is not a SIS requirement that this be done. A bank / unrelated party will normally always require a mortgage over the property. Re a related party lender they in effect have to have a mortgage over the property due to PCG 2016/5 - "Income tax - arm's length terms for Limited Recourse Borrowing Arrangements established by self-managed superannuation funds" that states:

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

If a related party lender does not have a mortgage registered on the property re the LRBA the "safe harbour" terms will not have been met and there is a risk that income from the property could be treated as not at arm's length & be NALI (non-arm's length income) and be taxed at 45%..

I recommend that they get legal advice re the proposed LRBA and the paperwork and mortgages required.

Thanks

SMSF AAA

Feb 09, 2023

Replying to

Thank you !

Much appreciated !!