Targeted measures to address the inappropriate use of gearing resulting from poor quality advice should be favoured over the proposed banning of borrowing in SMSFs, according to the Institute of Public Accountants (IPA).
IPA chief executive Andrew Conway said the recommendation by the Financial System Inquiry to reinstate the ban of limited recourse borrowing arrangements (LRBAs) within SMSFs “may not be the appropriate way to eliminate the use of poor quality advice relating to SMSF gearing”.
“The IPA believes that the issue is not SMSF borrowing per se, but inappropriate advice provided by unlicensed advisers,” said Mr Conway.
“We need better analysis of ways to address the risks surrounding borrowing before merely imposing an outright ban.”
Mr Conway said there is no evidence to suggest that LRBAs in SMSFs posed a risk to the superannuation system as suggested in the final FSI report.
“Interestingly, there are also no alternative measures other than an outright ban to mitigate some of the concerns raised,” he said.
“For example, if they are worried about the diversification, why not consider excluding LRBAs for funds with small balances.”
There is plenty of scope, Mr Conway said, to amend the rules to specifically address all of the issues raised without resorting to a total ban.
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