‘Death by 1000 cuts’ as LRBA changes loom
SMSF clients are becoming increasingly put off by LRBA-focused strategies given the fear they’ll be banned altogether, as yet another round of changes sits before parliament.
At the moment, a bill is before the Senate which purports to add add the outstanding loan amount for certain LRBAs to a member’s total superannuation balance. You can read more about the details of the proposal here. It’s the latest in a long line of tweaks to LRBA-related rules since SMSFs were first allowed to borrow in 2007.
Meg Heffron, director at Heffron SMSF Solutions, is finding low-risk clients are forfeiting potential wins with leveraging strategies because of the unstable legislative environment.
For Ms Heffron, who was also on the panel of the 2010 Cooper Review, the persistent changes are unwarranted. By and large, she sees that LRBAs are appropriately and modestly structured within an SMSF environment.
“I have seen some outliers and some people who probably borrow too much. But for every one of those there are plenty just doing normal, mainstream things. Typically the super fund will have one borrowing, with a bank loan, and they’re not massively geared,” Ms Heffron told SMSF Adviser at Heffron’s Super Intensive training days in Sydney today.
It’s ultimately a case of “death by 1000 cuts” for LRBAs, Ms Heffron believes. She’s held this opinion for several years, and particularly since last year’s federal budget, when more restrictions were proposed for fear trustees would use LRBAs to circumvent the incoming contribution caps.
“I don’t think it’s unreasonable to leverage your superannuation as a valid wealth creation strategy, but I suspect the government feels it is. So to them, every LRBA that doesn’t go ahead is good news,” she said.
“There’s plenty of reasons to attack on policy grounds - such as that [borrowing in super] potentially fuels heated housing markets. If that was being advanced as a reason, I might get it. But evidence of people blowing up their superannuation with LRBAs? I don’t believe that exists,” she said.
“If the government is going to persist with this, I wish they’d just ban it,” she said.