Firstmac director Kim Cannon said it has shelved plans to offer an offset with its residential SMSF lending product after receiving advice that such products may “fall foul” of superannuation laws.
“We have taken the trouble of getting advice, in order to ensure that our customers are going to be compliant with the much more restrictive rules around SMSF borrowing,” Mr Cannon said.
“As a result of that advice, we have shelved plans to offer an offset but established that there are SMSFs out there with loans that may be non-compliant.”
The issue stems from SMSF offset accounts that are structured as a redraw offset facility in the loan account, within the specific context of the superannuation legislation.
According to section 67 of the Superannuation Industry (Supervision) Act 1993 (SISA), a redraw on an SMSF loan is effectively considered to be a new loan, a new advance that requires all of the compliance checks for an advance. No lender currently makes these compliance checks on a redraw offset facility and it would not be feasible.
Mr Cannon said that SMSF trustees who had taken out an SMSF property loan that uses a redraw offset facility were potentially exposed to being non-compliant under the superannuation legislation.
“If you have an SMSF and it’s doing something that isn’t compliant with the legislation, then the tax status of the super fund is compromised,” Mr Cannon said.
“The ATO can withdraw the preferential treatment that is given to your super fund, so instead of paying 15 per cent tax you could end up paying 50 per cent tax, including on historical earnings.”
The latest ATO data shows that, in 2020, SMSF owners’ Australian residential property holdings increased by 7.5 per cent, to $39.1 billion, on the back of an 8.8 per cent jump in their total non-recourse borrowings to $50.23 billion.
Mr Cannon said that standard home loan products with a redraw offset facility are within the ATO ruling on offset accounts and did not raise tax concerns.
Firstmac recently moved to shake up the SMSF lending market, launching a simple, low-fee product with both variable and fixed-rate options.
The product has the lowest fees in the market, according to Firstmac, with no application fee, no annual or ongoing fees, no settlement fee and no legal fees for a refinance.
I am planning to sell my SMFS property . I have redraw available to pay the marketing fees and the furniture stylist which I believe is allowed . Can I pay for the painting as well as it is for preparation for sale . As the property will have no rental for 3 months can I use the redraw facility to make bank loan repayments as well ?
So the consensus is that the original loan amount say 1Mil stays at 1 Mill or lower (I think that’s the Key)? in the event of I&P and then cash in the fund is deposited into another account which offsets the interest of the first loan. The initial loan cannot be altered accept for down not up.
My understanding is the majority of the larger institutions don’t consider the SMSF offset facility as a loan product. It’s simply a bank account that mirrors the loan account rate, therefore any withdrawal isn’t technically a redraw. Surely these institutions would have previously looked at this area so they aren’t putting there customers at risk of any breach of SIS…….
As a broker, i know some funders have better system capabilities than others and most SMSF offsets are not transactional. Perhaps Mr Cannon should get some further experience in SMSF lending before scaring up Fake News.
Yes, I am astounded that the recent articles, starting with the Fin Review on the weekend, seem to have great difficulty in distinguishing between an ‘offset account’ and a ‘re-draw facility’, quite different beasts!
Does the concern here surround the use of an offset account or the availability of a redraw facility? The two are very different things. The concern surrounding re-draw facilities is nothing new and surely it’s up to the SMSF trustees to be aware of the rules/restrictions before they request a re-draw…
Agree. Clearly FirstMac are not offering a proper separate SMSF savings account as a 100% offset account, merely an attached redraw facility that is offsetting the interest. Which is a pity as this is a loan product that would assist those SMSFs where it has excess cash building from the members making large contributions and/or income well in excess of the required repayments but wants a buffer against rental arrears etc. I recall AMP bank had such a product before they exited the SMSF market.