International Law

The ATO's Taxpayer Alert TA 2008/05 "Certain borrowings by self managed superannuation funds ", discussed arrangements under which the trustee of a self managed superannuation fund (SMSF) enters into certain limited-recourse borrowings, which may not meet the conditions in subsection 67(4A) and/or breach other provisions of the Superannuation Industry (Supervision) Act 1993 (SIS Act), as well as related superannuation rules.

The ATO identified 5 features of such arrangements which may give rise to taxation and superannuation regulatory issues.

One of those features (relevant to whether the loan was limited recourse) was whether a personal guarantee for the borrowing is given by a third party, particularly when the guarantee is given by a member or a related party of the SMSF.

In draft taxation ruling TR2009/D3 the ATO has now advanced the risk of a SMSF Member in providing a personal guarantee for a loan to the fund by stating that:

A payment pursuant to that guarantee will constitute a contribution to the fund if the guarantor has no right of indemnity against the fund. A contribution will be made by a guarantor who has a right of indemnity only if the guarantor subsequently forgoes that right or is prevented from enforcing that right (for example by the statute of limitations).

Such a payment may breach the superannuation contribution limit.