LRBAs tipped as potential target in upcoming federal budget

Labor previously proposed a ban on limited recourse borrowing arrangements in SMSFs in the lead up to the 2019 election, which was won by the Coalition.

The ban was proposed back in 2017 as part of a housing affordability package.

Treasurer Jim Chalmers stated earlier this year that Labor would not be proceeding with previous policies from the 2019 election such franking credit changes but has more recently stressed the need to tackle the huge deficit and address the shortage of housing. 

Mr Abbott said he “wouldn’t be surprised” if a proposal to ban SMSF loans pops up again in the upcoming October budget.

“There’s a lot of arguments that they could potentially raise for it,” he said.

“Number one is that it’s a good tax saving for them. On the other side of that they could say that SMSFs have been pulling investment properties out that could be used for first home buyers.

“My gut feel is that we are pretty close to seeing some major changes for SMSFs and that the first one is going to be borrowing.”

If Labor does go in this direction, Mr Abbott said they may either look to undertake a review into SMSF borrowing first or make moves to legislate it quickly.

“It’s just one of those measures that looks too good, there’s not much downside [for Labor] in going down that direction,” he said.

One of the other measures that the government could potentially look to introduce, said Mr Abbott, is increasing the underlying tax rate for death benefits.

“When you think about the fact that there’s probably going to be a good $300 to 400 billion that’s going to be paid out over the next 25 years in death benefits, it wouldn’t be surprising to see that either,” he said.

While death benefits paid from super aren’t taxable where it is paid to a dependent, its possible that the government may look to increase the rate of tax where its paid to adult children for example, he explained.

“They might also look to apply a penalty tax rate where members have more than $3 million in super[for example],” he said.

“I think those are the big areas where its not going to impact their constituency.”

Labor’s proposal in 2017 to ban borrowing through SMSFs received significant backlash from the SMSF industry.

The SMSF Association stated at the time that the majority of SMSFs use LRBAs appropriately to build their retirement savings and that they should therefore remain an investment option.

Former SMSF Association chief executive Andrea Slattery also noted that there was “little convincing evidence” that the use of LRBAs by SMSFs was playing a significant role in affecting housing affordability.

Mortgage lender Thinktank also warned Labor against the ban on SMSF borrowing in 2019, with SMSF loans often a vital debt instrument for many small business owners.