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Compliance & Regulation

Govt to take measured LRBA approach

A tightrope walker.

Government to tread carefully on LRBA recommendation.

Assistant Treasurer Josh Frydenberg has given a clear indication the government will be addressing the Financial System Inquiry (FSI) recommendation for a total ban on limited recourse borrowing arrangements (LRBA) within SMSFs in a considered fashion and will not pander to the hysteria surrounding the situation.

Speaking at a recent Tax Institute function, the Assistant Treasurer framed some context around anecdotal evidence suggesting the use of gearing to purchase property within SMSFs, particularly arrangements encouraged by spruikers, was disastrous for the sector.

Specifically he referred to the scenario where an LRBA was put in place, after encouragement from a property promoter, to purchase an asset off the plan and subsequent to acquisition the asset price dropped or the rental income ceased and people’s superannuation balances were eroded as a result.

“Where this happens, it is clearly troubling. But these stories are very much the exception, not the rule,” he said.

“The available statistics on limited recourse borrowing arrangements, while not perfect, tell us that limited recourse borrowing arrangements remain a very small proportion of SMSF assets, and are more often invested in commercial property than in residential high-rises.

“Forty-two per cent of limited recourse borrowing arrangements – or around $3.5 billion – were invested in residential property in mid-2013.

“To put this in context, that means that only 0.07 per cent of Australian residential property – perhaps 6500 dwellings – were held by an SMSF through a limited recourse borrowing arrangement in 2013.

“While we do not intend to ignore these risks, we need to make sure that our response is proportionate to the problem the FSI identified.”

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