Summer Information Bulletin

SMSF - limited recourse borrowing

Borrowings of any sort within a Self-Managed Superannuation Fund (SMSF) are generally explicitly prohibited. Funds can however borrow in order to purchase an asset. In order to do so, certain criteria must be met:

  • Section 67A of the Superannuation Industry (Supervision) Act 1993 (Cwlth) permits a borrowing arrangement if the money borrowed is applied to a 'single acquirable asset' and the asset is held in a holding trust (legal owner).
  • Under such arrangements the SMSF trustee acquires a beneficial interest in the asset and the lender's right of recourse in the default is limited to the acquirable asset held in a building trust.
  • Money borrowed under limited recourse borrowing arrangements may be applied not only to acquire the single acquirable asset, but also when carrying out repairs and maintenance to the asset at the time of acquisition or at a later time.
  • No amount borrowed by the SMSF trustee may be applied to improve the single acquirable asset. A breach of this rule may lead to a contravention.

It is imperative to distinguish between maintaining, repairing and improving.
For more information please contact our office.

Christmas benefits

During the holiday season, staff and client functions and gift giving are quite common. If you are considering Christmas presents for your staff or clients ensure the gifts are below $300 per person - the threshold for Fringe Benefits Tax for minor benefits. Anything above $300 per person will be subject to Fringe Benefits Tax at a rate of 47%.

Alternatively, if you intend to hold a party you must keep the cost of your celebrations below $300 per person on the basis that it will be claimed under FBT minor benefits.

Please note, the $300 threshold includes all costs associated with the event such as meals, drinks and entertainment. If you send your employees home by taxi, travel to and from the event will also be factored into the $300 threshold.

If your Christmas party is slightly more extravagant and costs above $300 per person you will pay FBT but a deduction can be claimed for the cost of the event.

For employers that chose to be more altruistic, Christmas can be a time of charitable giving. While it may be considered unconventional, making a donation can generate goodwill amongst employees, in particular where they are given the opportunity to choose their charity. From a tax perspective it is the safest way to ensure that you and your business can claim a deduction for your 'Christmas charity' though it is important to make certain the charity is registered to receive donations that are tax deductible.

If you are planning to provide your staff with cash bonuses rather than a gift voucher remember that the cash will be taxed in the same way as wages and salaries; a PAYG withholding obligation will be triggered. The Australian Taxation Office view bonuses as ordinary earnings. This means the cash bonus will be subject to Superannuation Guarantee provisions too (an extra expense).