Another wrong turn

Division 296 tax limited recourse borrowing arrangements LRBA SMSF

The Division 296 tax debate in parliament has led to unnecessary questions about the use of LRBAs in SMSFs while its flaws remain unaddressed by the government reinforcing the perception this bill will not improve confidence in the super system.

The saga of the proposed tax on total super balances over $3 million keeps bubbling away and it’s turning into a situation where just when you think it couldn’t get any worse, it does. That’s right, the situation has taken another turn and it’s not one for the better.

Since the announcement of the measure, subsequent analysis has uncovered flaw after flaw associated with it from multiple perspectives, including its compatibility with the existing taxation system, core policy aspects and even the drafting of the relevant parliamentary bill.

I’ve said on numerous occasions all this adds up to only one conclusion – all round it is a very poor piece of superannuation policy.

The bill to bring in the Division 296 tax is still being debated in Canberra and the proceedings so far really do make you wonder what sort of rabbit hole we are heading into and exactly how dark and deep it will be.

In the latest development, the Greens party has put forward a few amendments, I would describe as senseless, that it would like to see before it will give any support for the passing of the bill. This includes having one old anti-SMSF chestnut rear its ugly head again.

To this end, the Greens want to ban the ability for SMSFs to use limited recourse borrowing arrangements. This is because by their logic these gearing facilities allow more SMSFs to invest in the residential real estate market, in turn exacerbating the current housing shortage in Australia.

Forget the fact there is no justification from a superannuation risk perspective, from a factual point of view there is nothing to back the call up either. As the SMSF Association pointed out when the Greens put forward their demands, a reference to ATO 2021/22 statistics in combination with CoreLogic real estate data shows SMSFs only account for 0.7 per cent, or $76.9 million, of the country’s entire residential property market valued at $10.8 trillion. In layman’s terms you couldn’t even describe it as a drop in a bucket.

The Greens also want the threshold of the tax to be lowered to $2 million. There’s a plan. If that was to be adopted, you can imagine how wide the net for this impost will be cast. Already the omission of an indexation mechanism to the measure means the tax will catch more Australians than the 80,000 estimated originally, so who knows what this number will grow to if $2 million is the trigger point.

As you can see, the whole thing has degenerated into the proverbial dog’s breakfast. It highlights how problematic superannuation policy can be if a proposal does not have anything even resembling bipartisan support.

But what is the significance of this latest chapter? Will these demands be seriously considered in any way, shape or form? And if not, will the current bill experience an impasse that will prevent the measure from going through at all? Your expectation will probably depend on whether you’re a glass-half-full or glass-half-empty person.

Either way, we can conclude this wrong turn and the whole process has been most effective in further eroding people’s confidence in the superannuation system.


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