NAB Equity Builder - too good to be true?

NAB Equity builder allows trust applications.

Assuming a correctly setup company to act as a bare trustee and custodian trust for limited recourse borrowing has anyone attempted an equity builder loan? Would it be possible?

(I fully understand that the directors of the bare trustee company (also SMSF members) would need provide personal guarantee to the loan.)

 

My EB facility is registered in the name of my family trust, to which I am a trustee and custodian. The max facility value was calculated using my assets and earnings capacity. I imagine it would be similar for a company within a trust.

 

Thanks. I've asked NAB if they have any restrictions on the type of trust/trustee or particular trust deed requirements/exclusions. I'm not optimistic but it's worth a go. An alternative is the nab super lever product which to me has unacceptable terms (high interest rate and risk of margin calls). This product appears to come pre wrapped with single bare trustee and trust per loan and compliant loan terms - but I'm not interested.

I'd imagine the loan facility terms would also need to need to be reviewed to ensure compliance to LRBA rules

Broadly speaking the loan application would also need to take into account income of the holding SMSF as well as the income of the directors/members otherwise there'd be little advantage in our circumstances and I'd just privately lend using resi property equity to the bare trustee.

Actually it would be far preferable if loan serviceability was based purely on the SMSF income (as that's the entity that would be paying P&I on the loan) but I'm not sure that's possible.

 

Response received

Unfortunately a Self-Managed Superfund cannot apply for an Equity Builder facility.
We have SuperLever facilities which are available specifically for SMSFs.

Not unexpected.

 

The loan agreement would cause the trustee to breach the SIS Act because it would likely have a clause that if the borrower is a trustee then they pledge security over the assets of the trust. A SMSF can only borrow if the bare trustee borrows and only the asset that is being purchased is used as security.

 

I understand the broad principle, but wouldbn't the borrower be the trustee of the bare trust and hence would only be pledging security over the assets of the bare trust (ie the assets bring purchased). What am I misunderstanding?

 

I haven't read their loan documents but the bare trustee is the trustee for the SMSF trustee which is legal owner of the SMSF assets. So the general wording might mean these SMSF assets are at risk of being at risk.

 

With regard to determining an individual members TSB, Treasury Laws Amendment (2018 Superannuation Measures No. 1) Bill 2018 (‘Bill’) requires the members TSB is increased by their share of the outstanding balance of a limited recourse borrowing arrangement (‘LRBA’) that commenced on or after 1 July 2018 for members:

1. who have satisfied a relevant condition of release with a nil cashing restriction, or
2. whose superannuation interests are supported by assets that are subject to an LRBA between the superannuation fund and its associate (often referred to as a ‘related party’ in everyday conversation)..

according to here:

The change has been introduced to address the risk of members using LRBA's to facilitate a recontribution strategy i.e. where members withdraw money from their accumulation account and borrow that same amount under an LRBA so that they do not exceed one of the total superannuation balance tests.
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Whilst I can understand the rationale for the restriction based on the first condition above, I'm struggling to understand the rationale for the restriction based on the second condition (related party loan). What is this attempting to achieve, and how would it be any different to an arm's length commercial loan (particularly since the intro if the safe harbour terms)?

I've read through all of the ATO legal databases and various online articles that explain the what and how but not the why related party loans have been singled out. Any super experts able to explain the "why" @Redom @Paul@PFI @Terry_w

 

This article goes into the measure in more detail. I'm still unclear as to why related party loans have been singled out. As far as I can see the same (similar) economic benefit to the member could be derived from loan from a non-associate.

New total super balance measure now law - what does it mean for LRBAs?

 

Is the monthly interest in EB is tax deductible.?

 

If you borrow to buy income producing shares it would be.

 

Yes

Borrowing to invest - Moneysmart.gov.au

Approved investments NAB

 

NAB EB approved list is slightly different, not as long as the standard margin lending: https://www.nabmarginlending.com.au...orms/Approved_Investments/EB_AIL_20210222.pdf

 

From Aussie Firebug

PODCAST – NAB EQUITY BUILDER

Today I’m interviewing Ben, a 34-year-old husband & father hailing from South Australia who is well on his way to reaching financial independence.

Ben reached out to me via my website and offered to share his personal experience with the NAB Equity Builder. This is a really popular financial product that often appears on financial forums so I thought it was a great opportunity to find out what it’s really like. We take a deep dive into the pros & cons of the NAB Equity Builder and how Ben and his wife are using it as a significant part of their journey to FIRE.

Some of the topics in today’s episode include:

• Ben’s backstory and why he chose to invest in shares using the NAB Equity Builder.
• What is the NAB Equity Builder and how does it work?
• Margin calls, LVR and what makes the NAB EB different from other margin loans.
• The NAB EB interest rate, fees and application process. Who actually owns the shares?
• How much Ben borrowed to get started and what he used as collateral.
• What extra gains has Ben made using the NAB EB over the last couple of years?

 

Heard on a podcast this week that due to popularity this product is presently oversubscribed and not taking applications.
‎The Australian’s Money Cafe: The rich are different...and this is why on Apple Podcasts

 

Yup it has been closed for few months

 

Yes, presently not taking applications. But you can do EOI

Mrs.APK did EOI early Feb, got her application processed and approved last month.

 

That's been the official line for a year or more I think. We applied while closed, by direct email of scanned paper forms. They accepted our app into a queue and 3 months later our account opened. This was a while ago, might have changed but I reckon its worth the effort for such a unique product.

 

New applications for NAB Equity Builder are not closed because I applied and got approved a few days later. Just send them the form via email.

 

When did you applied? What documents did you submitted along with application form.