It was a recommendation from the Financial Systems Inquiry (FSI) to ban the use of limited recourse borrowing arrangements (LRBA) within superannuation that put the operation of section 67A in the firing line as a strategy for SMSFs. With an overheating housing market, problems with property spruikers and ‘one-stop’ shops promoting the use of LRBAs, there was enough reason for concern within various circles to support a change.
In the quarterly statement issued by the Council of Financial Regulators (CFR), the following comments were made from the meeting held on 10 December 2018:
“Limited recourse borrowing by superannuation funds. Members discussed a report to Government on leverage and risk in the superannuation system, as requested in the Government’s response to the Financial System Inquiry. The use of limited recourse borrowing arrangements remains relatively small, but has risen over time. Leverage by superannuation funds can increase vulnerabilities in the financial system, though near-term risks have reduced with the shift in dynamics in the housing market.”
With all major banks having exited the loan space for SMSFs (along with AMP), there has clearly been a slowing down of activity in the space with a more specific set of second tier lenders now operating. Clearly this outcome has had an impact on the CFR and this recent statement.
The question is but for how long will LRBAs survive?
What is the impact of a Labor Government?
Whilst the CFR has given the use of LRBAs a ‘pulse’ again, it has already been a stated by the Labor Party to scrap the ability to borrowing within superannuation by repealing section 67A of the SISA. This was a result of the Labor party coming out in support of all recommendations made from the FSI. Therefore, whilst LRBAs appear to have a level of reprieve for now, a change in Government may again put the use of borrowing within superannuation in jeopardy.
Smarter SMSF documents
From this article, the following related documents are available on the Smarter SMSF platform:
- Limited Recourse Borrowing Arrangements
- Related Party Loan Facility Agreement
- LRBA Refinance
- Notify to vary interest rate (related party loan)