LRBA rush causing angst

The SMSF Association has expressed its consternation over the number of fund establishments executed in the lead-up to the ban on the use of limited recourse borrowing arrangements (LRBA) for the purchase of residential real estate that does not satisfy the definition of business real property introduced on 10 August.

SMSF Association chief executive Peter Burgess admitted he was concerned mistakes would have been made in the rush to have new funds established to allow an LRBA to be used for the purpose of acquiring residential property in the fund before the August deadline.

“There was a rush as we knew coming into 10 August. We were hearing the ATO was setting up over 400 SMSFs a day there at one stage leading up to 10 August,” Burgess revealed to attendees of the ASF Audits Technical Summit 2026 held recently in Adelaide.

“You’d wonder how someone could get [everything they needed to] in place in a week.

“So we’re concerned there may have been mistakes made around the documentation [with regard to the] contracts [and] the timing of these types of things.”

ASF Audits head of technical Jo Hurley recognised the regulator is also worried about the increased fund establishment activity during that period of the year.

“Kellie Grant from the ATO last week said [it does have] concerns [and] it will be monitoring around 13,000 funds established in that very short window,” Hurley noted.

To this end, Burgess is hoping the ATO is not too severe in its compliance approach towards these new SMSFs.

“We’d hope that the ATO will take a pragmatic approach to innocent mistakes that perhaps have been made [here]. We won’t know [immediately as any associated errors] will not come to the surface for a while yet until these funds are audited,” he explained.

“We hope the ATO will take a pragmatic approach to this because having to unwind these arrangements, as we all know, is not easy and can be expensive.”