SMSF changes - limited discretion to borrow money through "instalment warrants"

Recent law changes give SMSF trustees a limited ability to borrow money to acquire assets for superannuation funds. The change introduced a new exception to the prohibition on trustees borrowing - the "Instalment Warrants Exception".

The law changed in late 2007 - see section 67(4A) of the Superannuation Industry (Supervision) Act 1993 (SIS Act) entitled "Exception - Instalment Warrants".

Cleardocs deed updated to mention instalment warrants

Our lawyers at Maddocks have updated the Cleardocs' SMSF Deed to specifically mention the "Instalment Warrants Exception".

Our update is in response to requests from our customers to have the deed specifically mention instalment warrants - even though the new borrowing ability is allowed under all earlier versions of the Cleardocs deed.

How have earlier versions of our deed allowed borrowing?

The Cleardocs deed has always allowed trustees to borrow money - so far as this is allowed by the SIS Act (see "Specific powers" in Part L of the Deed). Therefore trustees of funds with the Cleardocs SMSF Deed can take advantage of the "Instalment Warrants Exception" without having to update the fund's deed.

What are the changes to the Cleardocs deed?

To help trustees who wish to borrow money under an "instalment warrant arrangement", the Cleardocs SMSF Deed has been amended. The changes are to the investment and powers clauses. They make it clear to anyone dealing with the trustee that the trustee has the power to borrow under an "instalment warrant arrangement" that complies with section 67(4A) of the SIS Act.

As always, the changes to our deed have been prepared and approved by our lawyers at Maddocks.

The changes will help trustees because banks often prefer to rely on a specific power rather than a general power.

Maddocks has also changed the PDS to warn fund members of the risks associated with investments made with borrowed money.

How can I update an SMSF fund's deed if I want to?

You can use the Cleardocs "Update SMSF Package" to update an existing SMSF deed. The process takes about 20 minutes and costs $147.40, including GST.

Updating the deed will help you to take advantage of these changes to the SMSF Deed - however, it is not essential.

Seek advice

As always, fund trustees and members must get professional advice as to the suitability of the Cleardocs "Update SMSF Package" and the Cleardocs SMSF Deed for their particular circumstances.

Any questions?

If you have any questions, please call Cleardocs on 1300 307 343