Government responds to the recommendation to ban LRBAs by SMSFs

Self-managed superannuation funds (SMSFs) since 2007, have been permitted to borrow money to purchase an asset provided a number of requirements are complied with. 

The Improving Australia’s Financial System Inquiry (the Murray Review) recommended that the Government prohibit SMSFs from entering into LRBAs.   The Murray Review believed that allowing LRBAs would increase the risk in the superannuation system and undermine its purpose as a savings vehicle.

The Government has announced that it does not agree with this recommendation.  It indicated that although there were “anecdotal concerns” about limited recourse borrowing arrangements, it did not consider the data “sufficient to justify significant policy intervention”.

Some commentators have criticised this decision and others have welcomed it.  The SMSF Association has announced that it is “delighted” with the decision “as the SMSF Association has been advocating for no change as we do not think there is a systemic risk with LRBAs”.

The Government has instructed the Council of Financial Regulators and the Australian Taxation Office to monitor leverage and risk in the superannuation system and report back to the Government after three years.  It remains to be seen what will happen then.

There are a range of requirements which must be complied with strictly for an LRBA transaction to be compliant.  There can be significant adverse consequences if an LRBA transaction is not handled properly.

If you have further questions, please contact frank@franklaw.com.au

This is not legal advice.