According to the ATO, with many SMSF trustees entering into
limited recourse borrowing arrangements (LRBAs), it appears there
is still some uncertainty with respect to associated taxation
issues.
Editor: SMSFs are generally prohibited from borrowing, but
since 2007 there has been an exception where an SMSF borrows on a
limited recourse basis to acquire a specific asset, and very strict
conditions are met. One of these conditions is that the asset is
not held in the name of the SMSF, but is instead held under a
separate trust (eg. a 'holding trust).
A trustee of an SMSF who enters into a LRBA for the purpose of
purchasing an asset will be treated as the owner of the asset for
income tax purposes, meaning the SMSF will be assessed on the
income earned on the underlying asset (such as rental income) and
will be able to claim any relevant deductions.
