The Australian Taxation Office (ATO) has clarified a number of definitions that related to borrowing rules for self-managed super funds (SMSFs).

The ATO ruling, SMSFR 2012/1, clarified what constitutes as a single acquirable asset in relation to a limited recourse borrowing arrangements within a fund and better differentiated between a repair and an improvement of an asset.

"The Commissioner's interpretation of these terms has provided a common sense and practical solution to legislation that could be read far more strictly," SMSF Professionals' Association of Australia (SPAA) chief executive Andrea Slattery said yesterday.

It's encouraging to see the Commissioner adopt such an approach, and it will certainly make life much easier for trustees and their advisers of SMSFs."

The amendments to the borrowing rules in July 2010 restricted some arrangements that had evolved under the previous rules, but they still allowed a fund to borrow provided it was used to acquire a 'single' asset.

But the definition of a single acquirable asset caused problems in practice, especially where properties were build across multiple titles.
 
"The issue that arose was around what constituted a single acquirable asset, and with this ruling it has clarified instances where there may be two separate assets at law but, for all practical purposes are one asset," Slattery said.
 
Slattery also welcomed the examples provided in the ruling to help clarify what constitutes a significant improvement. 

"It makes it clear that the amount borrowed can be used to repair the asset but where there is an improvement the cost must be obtained from other sources, such as the super fund," she said.