LRBA roadblocks tipped to see unit trusts surge in popularity
With LRBAs facing further regulatory restrictions, major lenders pulling out of the market and Labor proposing a ban on them, the use of trust structures is likely to see an uptick, according to a technical expert.
Speaking to SMSF Adviser, Insyt chief executive Darren Wynen said that Labor has consistently said that they will prohibit SMSFs from entering limited recourse borrowing arrangements for housing investments if it wins the next election.
In addition, he said, all of the major banks and AMP have now withdrawn their SMSF loan products for residential property, and there are measures currently before the Senate that will place greater restrictions on related party LRBAs.
Given some of these changes around LRBAs, Mr Wynen said that greater numbers of SMSF trustees may instead consider the possibility of gearing through a unit trust where there are unrelated parties involved.
“Historically, that’s always been around and in some ways that’s less onerous than borrowing at the fund level,” Mr Wynen said.
“I think we’ve already started to see that and it will continue to grow as a result of not only Labor’s proposed ban for LRBAs but also the restrictions on making non-concessional contributions for those with a total superannuation balance of more than $1.6 million.”
Unit trust structures already have an appeal to some clients anyway, particularly due to the price of property, he said.
“If you’re looking to invest in a property, then you really need to amalgamate the investment power,” he explained.
“I think geared unit trusts where there’s no control have always traditionally been popular, and I think they will continue to be even more popular and not just for borrowing.”
Miranda Brownlee is the deputy editor of SMSF Adviser, which is the leading source of news, strategy and educational content for professionals working in the SMSF sector.
Since joining the team in 2014, Miranda has been responsible for breaking some of the biggest superannuation stories in Australia, and has reported extensively on technical strategy and legislative updates. Miranda has also directed SMSF Adviser's print publication for several years.
Miranda also has broad business and financial services reporting experience, having written for titles including Investor Daily, ifa and Accountants Daily.