The SMSF Association (SMSFA) has welcomed a report that found limited recourse borrowing arrangements (LRBA) pose no risk to the superannuation sector, but noted their use should be accompanied by expert advice.
SMSFA chief executive John Maroney noted the association’s response to a previous report on LRBA related risks in 2019 was that a total ban on them was unnecessary if specific risks were addressed.
“What has occurred in the intervening three years reinforces our view that a ban on LRBAs would be overkill, with the report highlighting that SMSF borrowings remain a small percentage of total SMSF assets and, as such, pose little risk to financial stability, while helping assisting many small businesses, in particular, meet their retirement income goals,” Maroney said.
He said the viability of LRBAs was partly the result of integrity measures introduced in 2018, including changes to the total superannuation balance and non-arm’s-length income rules.
“In our opinion these measures have greatly improved the system, helping ensure LRBAs are used responsibly,” he said, adding the report also found LRBAs had little impact on property prices as they only made up a small share of total housing credit.
He also recommended that SMSF trustees thinking of using an LRBA in their fund seek specialist advice so they can get a full assessment of the risks, benefits and costs and avoid one-stop property shops that may be providing unlicensed advice.
“We have long supported a crackdown on their activities and believe ASIC (Australian Securities and Investments Commission) has done much to curtail their nefarious activities, but the fact they still operate highlights the need for the entire sector to remain vigilant to ensure this debt instrument remains available to the vast majority who use it responsibly,” he said.
The use of LRBAs highlights the importance of quality of advice and the upcoming final report of the Quality of Advice Review was likely to address this further, he said.
