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Forward Thinking Magazine : August 2011
27 Written by David Barrett, Head of MAStech Issues with the current LRBA rules Acquirable assets The current raft of LRBA rules became effective from 7 July 2010. Those rules introduced the concept of an 'acquirable asset' which, broadly, is a single asset or a collection of identical assets with the same market value, but excludes money. Direct shareholdings The intention to include a collection of identical assets as an acquirable asset appears to be to allow LRBAs over a parcel of shares, or units in a unit trust, etc. The stated intention of requiring LRBAs to operate on a stock-by-stock basis was to provide greater protection for super fund trustees, and prevent lenders 'cherry-picking' assets when reclaiming upon the borrower's default. Where a collection of assets is the subject of an LRBA, that collection must be dealt with as a single asset. This has practical implications in terms of administration and structuring costs -- further discussion of these practical limitations of LRBA direct share holdings can be found in the MAStech article 'Super, tax and licensing law changes affecting SMSF borrowing -- recent developments' (August 2010), also available in the MAStech Library. These limitations inevitably lead advisers to consider alternatives to direct holdings of diversified portfolios -- for example, managed funds, exchange traded funds, listed investment companies, etc. And it is worth noting that instalment receipt arrangements, which are technically not a borrowing arrangement, are not necessarily restricted by the 'acquirable asset' limitations. MAStech