Compliance, Regulation

SMSF specialist tips rise in fund establishments

limited recourse borrowing arrangements; LRBA; Grant Abbott

LRBA usage is likely to rebound off the back of government support and lower property prices.

A rise in the number of SMSFs established and an increase in sector litigation are two outcomes a strategy expert has predicted for 2019.

I Love SMSF founder Grant Abbott has forecast a rise in SMSF establishments on the back of a dip in market performance and the associated reduction in returns generated by industry and retail super funds.

“If the ASX 200 drops to 4000, expect to see a greater number of super fund members make the decision to do it themselves,” Abbott said.

However, he issued a note of caution against practitioners believing all will be positive in the coming year with regard to the total number of SMSFs.

“There will be a number of less well-structured SMSFs that will lose a sizeable part of their capital and given the age of their fund members, expect more wind-ups than we have seen since SMSFs were introduced in 1994,” he said.

In addition, he said it is likely there will be an increase in SMSF litigation this year resulting from precedents that have been established in recent court cases such as Cam & Bear Pty Ltd v McGoldrick.

“With the success of Cam & Bear, where a trustee was able to claim investment losses from an auditor, expect the lawyers to be ready, willing and eager to increase their focus on SMSFs and any person who administers or advises on them,” he said.

“Along with AFCA (Australian Financial Complaints Authority), where nil-cost complaints can be taken by any client on, really, a wide range of grounds, expect 2019 to be littered with litigation and increasing PI (professional indemnity) costs.”

He also warned of a less favourable environment for SMSFs should the Labor Party win the federal election in 2019, with changes to the refundable franking credit rules and negative gearing having already been flagged.

“Don’t be surprised to see LRBAs (limited recourse borrowing arrangements) to be more tightly controlled or even cast aside. This is politics,” he said.

“The Labor Party’s desire is to make industry superannuation funds the premier savings vehicle in Australia, over and above residential property, giving the unions huge economic and business clout.”

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