Light at the end of the tunnel for LRBAs

Despite expressing concern about “very troubling” property spruiker activity, Assistant Treasurer Josh Frydenberg has signalled the government is open to keeping borrowing in super on the table.

Speaking at a Tax Institute event in Sydney last week, Mr Frydenberg acknowledged that, despite the widespread hype, LRBAs represent a very small proportion of SMSF investment and are more often associated with commercial than with residential property.

“I do want to emphasise that we have been considering the issue carefully – we want to make sure the approach we adopt is proportionate to the risks that have been identified,” Mr Frydenberg said.

“Leverage always carries risks – lenders recognise this in their loan-to-valuation requirements – and while we do not intend to ignore these risks, we need to make sure that response is proportionate to the problem that the FSI has identified,” he said.

Mr Frydenberg stressed, however, that the government and regulators remain concerned about property spruiking activity in relation to SMSFs.

“We have all heard unhappy stories of property spruikers providing inappropriate advice to people, encouraging them to start up an SMSF in order to gear up and buy a flash new apartment off the plan,” Mr Frydenberg said.

“Then the property price plummets, or the rent dries up, and the member is either left wiping out their super balances by liquidating other assets or possibly losing the family home they’ve offered up as a personal guarantee,” he said.

“There may also be liquidity issues when funds move in to the pension phase. Where this happens, it is clearly very troubling to [the government], but at the same time, these stories are the exception, not the rule.”

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