Using a DIY super fund to buy property off the plan a grey area
Property investors looking to finance off-the-plan properties using their self-managed super funds should seek comprehensive legal advice, according to a property lawyer.
According to Daniel Butler, director of DBA Lawyers, off-the-plan purchases remain popular using SMSF limited recourse borrowing arrangements (LBRA).
“There are a lot of apartments selling off-the-plan and a lot more to come, with many SMSFs investing in them,” he has told delegates at the Institute of Chartered Accountants National SMSF Conference in Melbourne.
However, despite last week’s ATO draft ruling on LBRAs, which includes an example of an off-the-plan purchase as an allowable single asset acquisition, issues around the timing of making borrowing arrangements remain.
The ATO example reads:
“The trustees of an SMSF pay an amount to secure the purchase of an apartment 'off the plan'. This is not the subject of an LRBA.
“Once the apartment is completed and strata titled the trustees are required to complete the purchase. The trustees can enter into an LRBA to facilitate its acquisition as it is a single acquirable asset.”
“This means you have to be really careful with the timing of your limited recourse borrowing arrangements,” Butler says.
“According to the ATO, you only enter into an LBRA arrangement at times of settlement.
“But hang on … you have to know upfront when you sign the contract that you will have the borrowing on board, so timing here is an issue. You need to be certain of the funding at the time you enter into the contract,” he says.
“When you sign an off-the-plan contract, you are acquiring something that has not yet developed; you are acquiring “thin air”.
“The ATO has been undecided on this issue as well; its view is also up there in thin air.”
Butler is hopeful though that based on submission made to the draft ruling the commissioner will resolve these issues.
Currently, though, it remains a purchase which continues to worry some financial advisors and accountants.