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Compliance & Regulation

Shorten’s LRBA ban for SMSFs “ill-conceived”

Opposition leader Bill Shorten’s suggestion that a ban on the use of direct borrowing by SMSFs should be revisited to help cool an overheated housing market has been labelled a poor attempt to attack the sector as statistics show no link to systemic risks.

“Quite frankly, it’s the low-hanging fruit because it’s an easy target when it comes to the opposition,” LendEx chief executive David Ruddiman told selfmanagedsuper.

“Having a crack at the so-called ‘wealthy mums and dads’ out there that want the control and want to secure their financial future by setting up an SMSF is a soft target.

“If anything, it’s an ill-conceived crack at the tax aspects of acquiring property through super rather than any sort of a mechanism to try and put downward pressure on house prices and making property more affordable.”

In October 2015, the federal government’s full report on the Financial System Inquiry (FSI) said it would take no action against SMSFs and LRBAs.

The SMSF Association chief executive Andrea Slattery said the right decision was made when this FSI recommendation was rejected in 2015 and there was no compelling argument to suggest anything had changed since.

“The fact remains, there’s little or no convincing evidence that the use of LRBAs by SMSFs is playing a significant role in affecting housing affordability,” Slattery noted.

“The most recent ATO statistics show that SMSFs hold $24.3 billion in LRBAs, with these financial instruments being predominantly used to invest in residential and non-residential property in an almost 50/50 split.

“That estimated $12 billion where SMSFs have used LRBAs to invest in residential housing has to be put in the context of a $6.43 trillion housing market; in other words, LRBAs comprise only 0.18 per cent of the market.”

She said based on these figures, it was hard to argue LRBAs are a “market mover”.

“SMSFs investing in residential property, whether through borrowing arrangements or not, should not be singled out from other investors when looking at policy solutions to improve housing affordability,” she added.

“The idea that SMSFs have plunged into property investment in recent times also is not borne out by the statistics, with SMSF residential property holdings, both geared and ungeared, being consistently between 4 per cent to 6 per cent of total SMSF assets in recent times.

“In addition, there is scant evidence to support the notion that the use of LRBAs by SMSFs poses a systemic risk to superannuation or the broader financial sector.

“We still believe the clear majority of SMSFs use LRBAs appropriately and thus should remain an investment option.”

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