LRBAs should actually be limited recourse, says SMSF Association

The SMSF Association is calling for Limited Recourse Borrowing Arrangements (LRBAs) to be made actually limited recourse.

LRBAs have been under pressure, with the big four banks and AMP having stepped away from lending to SMSFs. ASIC recently suggested LRBAs be banned, which was also a recommendation of the Financial System Inquiry.

The Association is opposed to LRBAs being banned, and isn’t convinced they pose a systemic threat, but do recommend two policy changes – banning personal guarantees and raising education levels for advisers. Read more...

ASIC suggests requiring minimum balance for SMSFs, banning LRBAs

ASIC has suggested requiring a minimum balance to start an SMSF, banning LRBAs, and requiring SMSF trustees to undertake education as policy options that should be considered.

ASIC has been appearing before a Parliamentary Committee, which has oversight of ASIC, and was asked what policy solutions should be considered in light of recent reports by ASIC.

In its response to questions on notice, ASIC said the reports highlighted that many SMSF members don’t understand their SMSF or their obligations as trustees. ASIC also found that 10% of SMSF set up advise was likely to leave consumers significantly worse off in retirement, and 91% of SMSF set up advice didn’t comply with the law. Read more...

Westpac to stop new SMSF lending from 31 July 2018

Westpac is set to soon stop new lending to SMSFs.

According to reports Westpac will stop new SMSF Limited Recourse Borrowing Arrangements (LRBAs) at the end of July.

Westpac told ABC Radio National:

“In order to simplify and streamline our self-managed super fund product we’ll be withdrawing from sale our SMSF home loan product and business lending to SMSFs, effective Tuesday 31 July 2018. We will continue to service and support our existing customers.”

There are many potential motivations for Westpac to stop new lending to SMSFs. The Banking Royal Commission is set to start holding public hearings into superannuation on August 6. But Westpac told the ABC that it had commenced a review of the products before the Royal Commission started. ASIC has also been concerned about aspects of lending to SMSFs. Actions by APRA may have also impacted the willingness of the banks to lend to SMSFs. Read more...

Change to include LRBA in Total Super Balance has balance right

The Government has got the balance right with its changes to sometimes include Limited Recourse Borrowing Arrangements in the calculation of the Total Superannuation Balance.

The Government recently put to Parliament legislation to include Limited Recourse Borrowing Arrangements (LRBAs) in the Total Super Balance, under certain circumstances. This has for some time been a goal of the Government, over concerns that SMSF members could use LRBAs to manipulate the Total Super Balance and make additional contributions. Read more...

SMSFs being “unfairly targeted” over residential property investment

SMSFs have been unfairly targeted as being a ‘market mover’ in residential housing, says SMSF Association CEO John Maroney.

“When the Sydney and Melbourne property markets, in particular, were enjoying strong growth, there was ill-informed comment that SMSF investment in residential property was a key factor fuelling prices, especially as these funds had access to debt via Limited Recourse Borrowing Arrangements (LRBAs),” he said.

Maroney said the estimated $12 billion of LRBAs that SMSFs have invested in residential property “has to be put in the context of a $6.05 trillion housing market as of June 2016”. Read more...

Government consults again on including LRBAs in Total Super Balance

The Government is again consulting on proposed legislative changes to include Limited Recourse Borrowing Arrangements in Total Superannuation Balance, along with changes to the Non-Arm’s Length Income rules.

The Government has for some time wanted to include Limited Recourse Borrowing Arrangements (LRBAs) in the calculation of Total Super Balance. Draft legislation was released in the first half of 2017 for consultation, but the changes were dropped from the Bill introduced to Parliament. The new consultation paper says this was to “allow further public consultation”. Less than a week was given to make submissions for this initial consultation. Read more...

Changes to SMSF LRBAs top BT Advice list of queries

Changes to SMSF Limited Recourse Borrowing Arrangements (LRBAs) has topped the list of adviser queries for the June quarter, according to BT.

Changes were made to include LRBAs in the calculation of the Transfer Balance Cap, with further legislation expected later in 2017 to include LRBAs in the calculation of the Total Superannuation Balance.

BT Technical Consultant, Tim Howard, said the changes to LRBAs were easily the most topical query from advisers for the June quarter.

Mr Howard said the measures had broadly been introduced to prevent people from transferring funds from accumulation to retirement phases using a loan repayment, potentially circumventing the Transfer Balance Cap. Read more...

Legislation to include LRBAs in Total Super Balance expected later in 2017

Legislation including Limited Recourse Borrowing Arrangements in the Total Superannuation Balance is expected to be ready to be introduced to Parliament later in 2017.

Draft legislation including Limited Recourse Borrowing Arrangements (LRBAs) in the Total Superannuation Balance and Transfer Balance Cap was released earlier in 2017. However when the legislation was introduced to Parliament, in a Bill which has since passed and received Assent, it only included LRBAs in the Transfer Balance Cap. Treasury was reportedly consulting on how to include LRBAs in the Total Super Balance. Read more...

SMSF LRBA safe harbour interest rate increases for 2017/18

The interest rate has increased for the ATO safe harbour for arm’s-length SMSF Limited Recourse Borrowing Arrangements (LRBAs) for the 2017/18 financial year.

The ATO created a safe harbour for SMSF LRBAs from the non-arm’s length income rules in 2016, with PCG 2016/5.

The safe harbour interest rate for real property was set at 5.75% for the 2015/16 year – the Reserve Bank of Australia ‘Indicator Lending Rates for banks providing standard variable housing loans for investors’. The interest rate for later years was set at the rate published for May – that is, the May before the financial year in question. For 2016/17 the rate was 5.65%. The rate for 2017/18, based on the RBA figures, is 5.80%. Read more...

No plans whatsoever to change LRBAs, says Treasurer Morrison

Treasurer Scott Morrison has said the Government has no plans whatsoever to change the rules around SMSF Limited Recourse Borrowing Arrangements (LRBAs).

“We’re not touching the arrangements around limited recourse borrowing arrangements,” the Treasurer told the SMSF2017 Summit & Investment Expo.

Morrison noted the recommendation of the Financial System Inquiry to return to a ban on most forms of borrowing by SMSFs.

“That was the recommendation made to us, we haven’t been convinced there is an issue with this when it come to the SMSF sector, as a proportion of the investment property sector and the property sector more generally, it is quite small,” said the Treasurer. Read more...