The government has acquiesced to the Greens’ demand to ban the use of limited recourse borrowing arrangements (LRBA) by SMSFs to purchase residential property in order to have the federal budget passed in the Senate.
“In addition, the government has agreed to support an amendment that will be moved by the Greens to ban future limited recourse borrowing arrangements for residential property by superannuation funds,” Prime Minister Anthony Albanese said last week.
“Superannuation funds are generally prohibited from borrowing money to invest, with the exception of LRBAs that are used by SMSFs,” he added.
“Multiple inquiries have raised concerns that these arrangements raise risks for superannuation investors, including the 2014 Murray financial system inquiry conducted for the Coalition, and limiting new arrangements going forward will help protect people’s savings.
“These arrangements constitute less than 1 per cent of total residential property borrowing and less than half a per cent of new residential borrowing each year.
“These changes don’t in any way change the tax arrangements for superannuation, don’t impact any existing SMSF borrowing arrangements and provide time to finalise arrangements that are in train.”
The SMSF Association immediately criticised the announcement citing both the method by which the decision was made and the process involved in reaching it as being flawed.
“This is a significant change to the SMSF investment landscape being progressed through a late-stage amendment, without consultation or an evidence-based review process,” the association stated in a member update.
It also took the opportunity to acknowledge the value LRBAs have provided to SMSF members to date.
“LRBAs have assisted many Australians to achieve better retirement outcomes in a controlled and highly regulated environment for almost two decades,” it noted.
“They should not be constrained simply to secure passage of the government’s federal budget tax measures.”