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Caution needed around SMSF property advice

SMSF trustees need to examine advice concerning the inclusion of property through the use of gearing in their funds as the implementation of fee-for-service remuneration structures takes place, according to a specialist financial services lawyer.

“The move by advisers from commissions to fee-for-service combined with current low interest rates means that there are some advisers pushing the envelope when it comes to the structured investments they offer SMSF clients,” Kemp Strang partner Vicki Grey said.

“Before 2012, there were no real incentives for accountants and financial advisers to push property into SMSFs because there was no commission, however, the new FOFA (Future of Financial Advice) reforms do not prevent advisers from receiving referral fees for loans and, as a result, property investment strategies have become more popular with advisers.”

Grey also identified the situation of acquiring an apartment and a parking space as two separate titles as being a continual cause of problems due to the introduction of the single acquirable asset rule for limited recourse borrowing arrangements (LRBA) in 2010.

Specifically, the change is the source of angst for SMSF trustees who want to refinance loans for their funds that were established between 2007 and 2010, because in a lot of cases these transactions can no longer be executed under a single loan arrangement.

Another area of concern is where two SMSFs want to purchase one property together.

“This arrangement is rarely permitted by lenders as it can lead to issues with the lender’s credit policy as well as the SIS (Superannuation Industry (Supervision)) Act,” Grey said.

She suggested trustees looking to enter into an LRBA should check the adviser they were using had the requisite skill level to provide advice on those transactions by asking how many LRBAs the practitioner had successfully completed.

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