The following is general advice only and you should get very specific advice on your own proposed strategy before spending any money on implementing these strategies. Do not rely on general information in an article to put in place any strategy.
There is a general article on purchasing House and Land Packages which is linked at the end of this article. But to address the matter of draw downs in specific I will deal with it here. Yes you can engage in construction of a property under a LRBA (Limited Recourse Borrowing Arrangement) or Super Fund Borrowing as it is commonly know. It is also possible to have progress payments if the LRBA is structured properly.
The ATO provides example 10 in SMSFR 2012/1, which concerns the purchase of a house and land package by a SMSF under a LRBA. The ATO had said in that example that “because the contractual arrangement is for the acquisition of land with a completed house on it, and settlement occurs once construction of the house is finished, the deposit and the payment on settlement can be funded under a single LRBA.
This was followed up by a request for more details in a National Tax Liaison Group (NTLG) Superannuation Technical Sub=group meeting in December 2012 where they were asked to confirm more than 2 payments could be made, so not just deposit and final settlement payment but progress payments.
Please read section 7.4 of the NTLG Superannuation Technical Sub-group – meeting minutes December 2012
So they confirmed that it does not have to be only two payments. There can be multiple progress payments under the one single LRBA HOWEVER only if the terms of the LRBA allows the SMSF trustee to make multiple draw-downs for that purpose or if the SMSF funds the progress payments from its own funds.
You should also read the March 2013 minutes Section 7.5 Limited recourse borrowing arrangements and the payment of deposits. Please note NTLG minutes are for guidance by the ATO and are not binding rulings so get personalised advice..
So in summary:
The non-negotiable components of a successful LRBA for a House and Land package must include:
- the single acquired asset is at all times a completed house and land, and
- the security for the loan is at all times over the land and completed house, and
- the LRBA must allow drawdowns for the deposit, progress payments and settlement.
As this is a very specialised process and requires specific wording to the LRBA agreement you need to work with a SMSF Specialist Advisor, experienced Mortgage Broker and a Lawyers who know how to draft personalised documentation. Do not trust a bank to provide all the documentation on a loan like this as they will only be interested in protecting their interest and that may not provide you with the documentation to meet the Section 67A exemptions.
It may be better to consider arranging a loan with an offset account (never a redraw facility as that would breach the rules) that is draw down in full initially and the excess stored in the offset account and used to fund the progress payments as the build progresses.
Please read Can I borrow to buy a house and land package off the plan in my SMSF? page for more background on this subject