Well it has finally happened and it feels like it was always inevitable. The government has taken its first step against limited recourse borrowing arrangements or LRBAs. This has always been seen as the lowest piece of hanging fruit for any quarters against the sector to use whenever they have felt the need to launch an attack on SMSFs.
To this end, we’ve heard all of the arguments before, in particular the notion the use of LRBAs to purchase real estate is overheating the residential property market. Time and time again, when this piece of noise has reared its ugly head, it has been refuted, noting most LRBAs used in this manner are for the acquisition of commercial property.
But as we have seen in the past week or so, certain politicians will use any excuse to have a crack at these legitimate borrowing instruments.
It’s hard to begin to explain how flawed the argument against LRBAs has been. A good place to start, I suppose, is the Financial System Inquiry held back in 2014 when David Murray warned what a threat this gearing facility represented to people’s superannuation.
Murray wanted an outright ban of them, but in the end, it was agreed a periodic review of their operation be performed to monitor how much of a risk they pose. Each review has found no problems.
At the time, Murray doom-mongered, expressing one of his greatest concerns was SMSF trustees using an LRBA would potentially find themselves in a position of having to sell off other fund assets to meet the loan liability. To date there is no evidence this has ever happened.
But unfortunately, Murray planted the seeds of dissention by including this recommendation in his final report and the government was quick to cite it when it announced a restriction on the use of these gearing arrangements.
This point aside, the cold hard fact even Prime Minister Anthony Albanese recognised is LRBAs make up “less than 1 per cent of total residential property borrowing and less than half a per cent of new residential borrowing each year”.
This statement alone contradicts any justification for making the move, whereby imposing the ban on LRBAs used to purchase residential property will somehow free up more affordable housing for young Australians.
Further, the Greens claimed the new LRBA position will go some way to addressing the issue of property spruikers encouraging people to establish an SMSF for investments in the offerings to which they are linked. I’m not sure how that logic works considering a lot of this activity involves investments in managed funds, like the Shield and First Guardian situations.
Also I can’t see how banning LRBAs used to purchase residential property will address the issue as it appears to be just fiddling around the edges. If real action to address the problem of property spruikers is to be undertaken, surely it has to be tackled at the source and not the perceived structures they are using to facilitate their questionable practices.
At the time the budget was handed down, it was widely recognised as a leg up for the superannuation industry with regard to the carve out of the changes to capital gains tax – SMSFs included. I did include the caveat on social media “for now”. And, of course, the horse trading in the upper house has again shown if the government has any excuse, it will come after this sector.
Further, I have it on good authority Canberra’s attitude is SMSFs should be grateful because it could have gone a lot harder against the sector if it wanted.
So a rewind tells us first it was the introduction of the Division 296 tax, in the main aimed at SMSFs with large balances, and now a ban on certain LRBAs. It would then only be logical to ask what’s next.
Darin Tyson-Chan will be providing an update on some of the latest issues such as this at SMSF Trustee Empowerment Day 2026. Click here to secure your seat at the event.