Speaking at an event in Sydney, Deloitte Private partner Liz Westover said while limited recourse borrowing arrangements (LRBAs) are safe for now following the Coalition win, the government will still be pushing ahead with its amendments for LRBAs.
The amendments will mean that the borrowing amount of the loan is added to an individual’s total superannuation balance for certain SMSFs.
Despite the Cooper Review in 2010 coming to the conclusion that a review of LRBAs should be conducted, Ms Westover said, the government has never actually conducted a comprehensive review of borrowing in super.
“It has been pushed back and pushed back. So, the government never really had a good look at them and whether they are appropriate in the system,” she said.
“My view is that they need to decide whether they’re in or they’re out, and if they’re in, then let’s get some proper legislation around them and put the rules in place that actually make them practical for people to use.”
She questioned some of the current requirements currently in place for LRBAs including the need to have a bare trust set-up.
“I don’t see why we need to have this bare trust. Now I’m not a lawyer, but I don’t see why there needs to be this structure around the assets being held on trust for the fund,” she said.
“Why can’t the fund just own them directly? Wouldn’t that make them a lot simpler?”
The government needs to make a decision on whether it wants to keep LRBAs or not and have a good look at the rules around them, she explained.
“If they don’t want to allow them, then let’s just get rid of them and be done with it, instead of this constant analysis and people getting caught out on technical issues with LRBAs,” she said.
ASIC and the govt are truly illogical. First they require all trustees of SMSFs to consider members insurance needs, then when members arrange it, they propose to punish those with related party borrowings by adding it back onto their TSB. Insurance that would otherwise reduce the need for forced sales.Go figure.
I wouldn’t wish for this because I think it is obvious that some parts of the public service at least don’t want LRBA’s to exist. Sometimes it is better to shut up and accept a flawed system.
Couldn’t agree more. In the meantime it is worth noting that DomaCom enable a debt through a property Subfund without an LRBA. The subfund is the borrower but the income, capital growth and tax benefits flow to the SMSF.
I fully agree with Liz’s comments & I would like to see from the ATO how many LRBAs have fallen through. Importantly the bare trust or holding trust provides a shield against the Trustee’s other assets in the event of default. Could it be simplified, let’s work it out.