Mr Dunn noted the default position of the panel in the Financial System Inquiry’s interim report suggests the panel believes superannuation is better off without leverage.
“It appears abundantly clear from the FSI panel and a range of submissions, including the Reserve Bank and big four banks, that the days are coming to a close for the use of leverage inside super,” Mr Dunn said.
Mr Dunn believes leverage can only exist in the future where SMSF loans are provided by financial institutions that fall under the auspices of APRA.
“If you look at many of the topical issues around LRBAs, it have been with related-party arrangements – zero interest loans, use of SISR 13.22C-related trusts and more,” Mr Dunn said.
“In reality, the removal of related-party arrangements make things clear-cut. If a bank won’t lend on the arrangement, then it wouldn’t be arm’s-length. This appears consistent with the ATO’s changed views around non-arm’s length income (NALI) through a range of recently issued private rulings on related-party zero interest loan [LRBAs].
“It is important to note that this is a review and not a mandate for legislative change. However, following similar concerns in the Super System Review (Cooper Review) in 2010, one must have some concern as to whether the writing is on the wall for LRBAs.”
On another point if SMSF cannot borrow because of the concern about to much property in super. What is going to be done about all the mum and Dad investors who buy property? Surely the same person buying property in their personal names or as Trustees in the SMSF is going to have the same risks and concerns. Or is it just another cynical push by the retail and industry funds to try and keep members from going to SMSF. Now that’s not a hard question to answer is it.
If they ban borrowing in super funds I trust it will be ALL super funds which includes industry and retails funds as well. A related party loan is still a borrowing and it is no different to using a bank to borrow, except that you know that you can borrow the funds and do it promptly to allow you to buy an appropriate investment. Whereas a bank will cost you significantly more in fees, charges and time and may in fact not be approved in time and if it is approved may not be processed in time to enable to fund to settle the transaction. Thereby costing the fund even more. That is why related party borrowing is popular and preferred over banks.
no wonder people think super is a joke. This will make it the 3rd time in history borowing has been allowed only to be subsequently banned.
A great idea but maybe your heading should say what the article is about not just be headline grabbing.I am all for related party loans going and the investment being a legitimate loan . But please next time say related party lines under fire not end is near when it is not and you simply confuse investors from using a legitimate strategy inside their fund