Speaking at the SMSF Professionals’ Association of Australia national conference in Brisbane yesterday, Senator Sinodinos said there is no separate review of limited recourse borrowing or of other parts of the SMSF sector currently underway.
“We’re not looking to have a review specifically into limited recourse borrowing, let me make that quite clear,” Senator Sinodinos said.
“There is the financial [sector] inquiry, which is looking at the overall architecture of the financial system and as part of that it will also look at the role of the superannuation sector, the savings pool… of which SMSFs are about a third,” he added.
“That’s looking at the sector through what I call a systemic lens. It’s looking at how each part of the system impacts on the rest of the system, as opposed to having a specific review of either the licensing or the regulation around this sector.”
Following the Senator’s address, AMP SMSF’s Peter Burgess said recent discussions with Treasury suggest they haven’t been asked by government to start a review.
“We need to remember that the decision to do this two-year review was a previous government initiative, the current government’s [view is] … they don’t believe there needs to be a standalone review of limited recourse borrowing,” Mr Burgess said.
“I think what will happen here is that review will end up in the financial sector review, along with the decision to license these arrangements, which has been on the table now for a number of years.”
Hi Richard – if you could guarantee the 10% remained there maybe yes. I admit that my “solution” does cut off some of the more sophisicated solutions but I think in designing a framework for the whole system it needs to be fairly simple and straightforward and assured of achieving the stated goal. It does mean some perfectly good sensible people will be cut off from some options but looking at the whole system the main objective is to not have a wholesale meltdown and then have people agitating for the total banning of LRBAs
Kingsley isn’t 80 LVR with 10% left in an offset account or other liquid investments as a buffer better than 70LVR?
The other thing that should be reconsidered is the prohibition on related party purchases of non-BRP/residential property. If the transaction price is supported by a licensed valuation where is the sin?
How is that fundamentally different to a correctly conducted related party BRP transaction?
This would also have effect of removing quite a bit of the incentive for so called property spruikers to market to new and existing SMSFs as many would elect to acquire a residential property their members own already and retire personal debt. Not a bad thing
The Govt should probably reconsider this. In particular should gearing be mandated to say no more than 70% for residential and 65% commercial to create a situation where highly likely a property under a LRBA is positively geared or pretty close to it? That should give a fair bit of protection in event of job loss/poor health of members. Yes that does restrict people from doing some things, including people sophisticated enough to handle higher geared scenarios but if we don’t keep LRBAs fairly conservative the first significant property downturn will see quite a few horror stories especially if accompanied/caused by widespread job losses and we could lose LRBAs altogether in some knee jerk reaction.