The commissioner Michael D'Ascenzo will exercise his discretion to allow SMSF trustees to use limited recourse borrowings to repair the fund asset damaged by a natural disaster. The type of repairs that are needed would normally be classified as an improvement to the asset or even a replacement asset, neither of which can be funded via the use of a limited recourse borrowing. However, the commissioner indicated he would respond favourably to request to borrow for reinstatement of property and overlook breaches of the replacement asset rule due to the extraordinary circumstances. Insurance policies would often cover some or part of the cost, so the borrowing may be temporary or small. "In financing repairs or incurring other costs, trustees may need to borrow funds and if trustees contravene the limited recourse borrowing provisions due to the natural disasters experienced Australia-wide, we would be favourably inclined to exercise the commissioner's discretion under section 42A(5) of the Superannuation Industry (Supervision) Act 1993 to continue to treat the super fund as complying", D'Ascenzo said, during a recent address to SMSF professionals. "We are currently reviewing this matter with Australian Prudential Regulation Authority and Treasury to ensure no unintended consequences arise".
23rd-March-2011 |