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.
It is indeed a “fantastic strategy for SME’s to use LRBA arrangements (in their SMSF) to grow [their] business”, like concessional tax advantages to acquire a business property asset which is protected from creditors, liquidators, bankruptcy of business owners , and separate from their own family assets. It is a wonder all SME’s are not using this strategy before one blows up and the government wakes up to the benefits they have created .