Borrowing in superannuation was introduced for “sound” reasons and its prohibition could see “fantastic” benefits withheld from small business, according to The SMSF Academy’s Aaron Dunn.
Speaking at the 2014 FPA professional Congress in Adelaide last week, Mr Dunn said unless the benefits of limited recourse borrowing arrangements (LRBAs) are understood the government should hold off making any decisions to prohibit it.
“What we do know is quite clearly is that there are pockets [in] the SMSF sector that are clearly benefiting from these limited recourse borrowing arrangements,” Mr Dunn said.
“We know that the largest component of LRBAs is not residential property but it is business property,” he said. “Close enough to half of the arrangements that exist today are done with small businesses in Australia.”
“It is a fantastic strategy for SME clients to look at LRBA arrangements to grow [their] business, to get involved with the ongoing improvement of the business and the success of them financially.”
Mr Dunn also pointed out that he believes the Financial System Inquiry is likely to “take things back” to where they were prior to September 2007 – where LRBAs were not permitted.
“As the [FSI] clearly states there are lots of opportunities that we have outside of superannuation that would allow us to take leverage and more. They’re quite clear about saying ‘We don’t think this is a good thing’,” he said.
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