Trustee association the SMSF Owners’ Alliance has hit out at proposals to ban the use of gearing within superannuation and abolish the dividend imputation system.
In its pre-budget submission to the federal government, the trustee advocate body echoed the sentiments of many other industry bodies in its opposition to the Financial System Inquiry’s (FSI) recommendation to discontinue the ability of SMSFs to use limited recourse borrowing arrangements (LRBA) on the basis that “the proportion of total superannuation assets covered by LRBAs is tiny”.
Further, the SMSF Owners’ Alliance defended the use of gearing by SMSF members as what could be considered a sensible investment strategy to build their assets in a constrained contributions environment.
As an alternative to a complete banning of LRBAs, the body proposed a limit on the amount an SMSF member could borrow. It suggested an appropriate level might be 50 per cent of the asset value.
In addition, it suggested the FSI’s concerns over property spruikers encouraging the use of an LRBA to acquire a residential property within an SMSF could be addressed through official regulation, self-regulation and effective supervision of investment advisers and property agents.
It also disagreed with any proposal to eliminate the current dividend imputation system, stating it was “incorrect to suggest that the availability of imputation credits to superannuation funds may erode a valuable source of government revenue over time”.
While the SMSF Owners’ Alliance pointed out it did not believe the refunding of imputation credits to superannuation funds was beneficial, it expressed concerns how a move like that could adversely affect SMSF trustees.
“We would agree that the existence of imputation may bias rational investment towards domestic equities and that may be why SMSFs’ largest investment category is Australian equities,” the submission said.
“We would also argue that a high holding of domestic equities, earning over the long term a positive real rate of return and essentially an investment in the Australian economy, provides SMSF beneficiaries with a natural hedge against their retirement expenditure, which in most cases would be substantially in Australia and subject to Australian inflation and cost pressures.”
