Mr Song uses the example of John and Mary. Both are members and trustees of their SMSF and are thinking of selling a collection of units in a unit trust, subject to an existing LRBA, to increase the needed liquidity of the fund.

John and Mary’s business has been hit hard by the conditions imposed by the pandemic and they read the government’s recent announcement that, depending on the circumstances, individuals who have been adversely affected by the virus can have access to their superannuation early up to $10,000 in the current financial year and another $10,000 in the next.

John and Mary are considering selling $20,000 worth of their 100,000 units in a unit trust their SMSF holds, subject to an existing LRBA. All units are identical and worth $1 each.

From an LRBA compliance perspective, John and Mary’s options regarding the units are:

• sell all of the units, or
• discharge the loan in full and sell any portion of the units, or
• retain units in the fund.

In this situation, Mr Song said trustees should take extra caution when liquidating a collection of geared equities/units.

“At the time of the purchase, there would have been a requirement under superannuation gearing law that a loan could only be used to acquire ‘a single acquirable asset’,” he said.

“In relation to shares and units, a parcel or group of identical shares or units (i.e. of the same type, value or class) is deemed to be ‘a single acquirable asset’ for LRBA purposes.

“Once the units are acquired with the loan, they will have to be held as a single undivided parcel until the full repayment of the loan, as s67B of the SIS Act operates to effectively prohibit any trading of a portion of the acquired collection of units.

“Their decision should also be based on, and comply with, the current investment strategy of the fund, and if the decision involves further actions by the holding trustee, there should be a clear documented direction from the fund trustee to the holding trustee.”