Superannuation and Borrowing

Transitional Rules

Broadly, superannuation funds are not permitted to borrow funds. Prior to August 1999 self managed superannuation funds could invest in related unit trusts that had borrowings and in doing so benefit from increased access to capital and leverage.

Amendments to the “in-house asset rules” from 11 August 2009 brought an end to this practice but pre-August 1999 super funds that did invest in leveraged unit trusts received grandfathering protection via transitional rules. These transitional rules come to an end on 30 June 2009.

For this reason it is important that all of those with self managed super funds with pre-August 1999 investments in geared unit trusts carefully review their circumstances prior to 30 June 2009.

It is important that you do this as borrowing further funds may breach the “in-house asset rules” and this may render the investment in breach of the legislation’s investment provisions and render the fund a non-complying one and create a significant tax penalty.

If you believe this may relate to you then it is important that prior to 30 June 2009 you:

1. seek legal advice to ensure your superannuation fund is not in breach of the relevant legislation.

2. pay all unpaid trust distributions to the super fund as this is your last chance to capitalise these earnings into further units.

3. consider paying an early interim distribution to the super fund to enable current earnings to be capitalised into further units.

4. instruct the trustee to consider how the geared unit trust will service its ongoing debt obligations in the future as this may be more difficult after 30 June 2009.

Instalment Warrant

Following amendments to superannuation law superannuation funds are permitted to borrow if a legal process is documented and followed, whereby an instalment warrant is created.

Please contact MST to ensure your superannuation fund continues to comply with the relevant legislation and your retirement is protected.

Author: Sam Kings