The SMSF Academy’s Aaron Dunn, who has long predicted the FSI would recommend a ban on borrowing in super, believes a “significant amount of work” will be required for LRBAs to have a future in the SMSF sector.
Speaking to SMSF Adviser, Mr Dunn acknowledged the merit in the FSI’s argument against leverage in super, however he pointed to the opportunities limited recourse borrowing arrangements (LRBAs) pose for small to medium-sized businesses through tax concessions.
“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," he said.
Similarly, director of wealth management at mid-tier firm Pitcher Partners David Lane said while limiting borrowing in super is a step towards improving stability in the super system, it could have unintended consequences on small business owners.
"Countless small business owners utilise the LRBA rules to own their business premises. With a blanket ban on borrowing within super, there may be a negative impact on small business around the country," he said.
In addition, LRBAs have rarely enjoyed a “period of stability” since they were permitted in super seven years ago, Mr Dunn said.
“The former government had two opportunities to remedy the 'property spruiking' by making s67A and 67B a financial product. We saw a recommended two-year review from [the] Cooper Review amount to nothing, and more changes to the law, and interpretations of the law than just about any piece of superannuation legislation,” Mr Dunn said.
“The notion of tax concessions on savings, not borrowed funds is a valid one, but in reality has the legislation ever really had an opportunity to play out for those that should have appropriately benefited? We may never know.”
The FSI’s recommendation to ban borrowing in superannuation, although only a recommendation, could potentially be the “final nail in the coffin” for LRBAs, Mr Dunn suggested.
“The 44 recommendations have now been released by Treasury for public consultation until 31 March 2015. I suspect the white flag by the super industry hasn’t been fully raised yet, but it would appear that a significant amount of work will be required for it to survive.”
SUBSCRIBE TO THE SMSF ADVISER BULLETIN
- 08:20Data feeds unreliable for new reporting, says mid-tierBy Miranda Brownlee
- 08:00Tax component confusion spurs potential tax liabilitiesBy Miranda Brownlee
- 08:00Contributions triple in June quarter, survey showsBy Staff Reporter
- 17 Aug 2017Industry questions ATO’s capacity for new reportingBy Miranda Brownlee
- 17 Aug 2017Qld succession law changes tipped to impact SMSFsBy Miranda Brownlee
- 16 Aug 2017Contribution limits restricting future balances, warns mid-tierBy Staff Reporter
- view all
- Data feeds unreliable for new reporting, says mid-tier
With an estimated 20 per cent of SMSFs still encountering errors from data feeds, one mid-tier firm believes the ATO should allow SMSF pract...read more
- Tax component confusion spurs potential tax liabilities
A lack of understanding around taxable and non-taxable components in super funds could be exposing SMSF clients to unnecessary tax liabiliti...read more
- Contributions triple in June quarter, survey shows
The average contribution amount from SMSF trustees tripled for the June 2017 quarter, with super members looking to maximise their contribut...read more
- Industry questions ATO’s capacity for new reporting
With events-based reporting set to generate huge amounts of data, concerns have been raised about whether the ATO’s systems will be able t...read more
- view all