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      Email Copy for Refinancing of a LRBA Borrowing on LYD

      RE: POTENTIAL REFINANCING OF LIMITED RECOURSE BORROWING ARRANGEMENT FOR YOUR SELF-MANAGED SUPER FUND


      We hope this email finds you well. We understand that you are considering refinancing the limited recourse borrowing arrangement (LRBA) currently in place with your current bank for your self-managed super fund (SMSF) that was used to acquire a residential property. We appreciate the opportunity to provide you with advice on this matter, including the potential implications and penalties involved.


      Firstly, it is essential to review the terms and conditions of the original LRBA with the current bank. It is possible that the documents implementing the arrangement contain clauses that may prevent or complicate the refinancing process. For example, there may be an early repayment penalty or restrictions on transferring the LRBA to another financial institution or to yourself as the trustee.


      Should you decide to proceed with the refinancing, it is crucial to ensure that the new LRBA strictly adheres to the Australian Taxation Office (ATO) regulations governing LRBAs for SMSFs. The Superannuation Industry (Supervision) Act 1993 (SISA) and the Superannuation Industry (Supervision) Regulations 1994 (SISR) set out the borrowing rules for SMSFs. In particular, SISA section 67A and SISR regulation 13.14 provide the legal framework for LRBAs.


      If the refinancing arrangement does not comply with the relevant provisions, the ATO may consider it a breach of the borrowing rules, which may lead to severe consequences for your SMSF. The potential penalties for non-compliance include:

      • A fine of up to $13,300 for each breach under the SISA.
      • A breach of the borrowing rules could also result in your SMSF being declared non-compliant, leading to the loss of the fund's concessional tax treatment.

      The ATO may require the property in the SMSF to be sold to rectify the breach.
      Given the potential penalties and ramifications, I strongly recommend that you consult with a qualified professional, such as a financial adviser or lawyer, before proceeding with any refinancing. They can help you navigate the complex legal and regulatory requirements, ensuring that your refinancing arrangement complies with the relevant legislation and minimizes any risks associated with potential breaches.


      In summary, while refinancing your SMSF's LRBA may offer potential benefits, it is crucial to carefully consider the legal and regulatory implications. By seeking professional advice and ensuring compliance with the relevant legislation, you can minimize the risk of potential penalties and protect the financial interests of your SMSF.


      Please feel free to contact us if you have any further questions or concerns, or if you would like assistance in connecting with a suitable professional to guide you through the refinancing process.

      Email Copy of for Refinancing of a LRBA Borrowing on LYD
      https://passion-world.slack.com/files/U03H9J133B7/F050RR4038S/email_re_refinancing_a_lrba_borrowing.docx