A Minter Ellison partner has warned that a blanket ban on SMSF borrowing will re-introduce doubt over investments such as instalment warrants and has urged the government to appropriately identify where true risk lies with LRBAs.
Speaking to SMSF Adviser, Minter Ellison partner Richard Batten explained the prohibition on borrowing in super was originally lifted to remove uncertainty with instalment warrants.
“There was a concern that while you have an instrument, that in the very general sense of the word could be seen as a security, it is actually structured under Australian law as a loan,” Mr Batten said.
He stressed the differences in risk exposure between investing in direct property via an LRBA and investing in an instalment warrant.
“We perceive the risk that the inquiry is talking about seems to be more oriented around risks associated with the real property market rather than risks that would be associated with investing in vanilla instalment warrant products,” Mr Batten said.
The recommendation does not seek to distinguish between those two scenarios, a Minter Ellison briefing stated.
“Section 67A is an extension of the original exemption which was inserted to allow super funds to invest in instalment warrants like those offered for example in 'T1' and 'T2' issues of Telstra securities,” the briefing stated.
“It was intended to remove doubt about whether such an investment involved 'borrowing', so removing it will simply reintroduce that doubt.”
Mr Batten said an across-the-board ban on borrowing is therefore “probably not the right way to go”, unless the government consciously takes the view that instalment warrants pose a similar level of systemic risk as borrowing to purchase property.
“If [the government] accept the views of the inquiry around the risks that the inquiry is concerned about in relation to these sorts of arrangements, we would encourage them to make sure that there’s careful consideration given to the other circumstances in which this exemption applies,” Mr Batten said.
SUBSCRIBE TO THE SMSF ADVISER BULLETIN
- 08:00Lawyer challenges ATO view on two fund strategiesBy Miranda Brownlee
- 08:00Risks flagged with real estate appraisal valuesBy Miranda Brownlee
- 18 Aug 2017ATO locks in details, addresses panic on real-time reportingBy Katarina Taurian
- 18 Aug 2017Data feeds unreliable for new reporting, says mid-tierBy Miranda Brownlee
- 18 Aug 2017Tax component confusion spurs potential tax liabilitiesBy Miranda Brownlee
- 18 Aug 2017Contributions triple in June quarter, survey showsBy Staff Reporter
- view all
- ATO locks in details, addresses panic on real-time reporting
The tax office has addressed several points of confusion with the new events-based reporting regime, locked in key deadlines, and outlined w...read more
- 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
- view all