SMSF Association rejects Labor proposal to ban LRBAs

The SMSF Association remains supportive of Limited Recourse Borrowing Arrangements (LRBAs) in the wake of today’s announcement by the Labor Party to recommend their abolition in line with the Financial System Inquiry (FSI) final report.

SMSF Association Managing Director/CEO Andrea Slattery says the right decision was made when this FSI recommendation was rejected in late 2015, and there is no compelling argument to suggest anything has changed since regarding LRBAs.

“The fact remains there’s little or no convincing evidence that the use of LRBAs by SMSFs is playing a significant role in affecting housing affordability.

“The most recent Australian Tax Office statistics show that SMSFs hold $24.3 billion in LRBAs, with these financial instruments being predominantly used to invest in residential and non-residential property in an almost 50-50 split.

“That estimated $12 billion where SMSFs have used LRBAs to invest in residential housing has to be put in the context of a $6.43 trillion housing market. In other words, LRBAs comprise only 0.18% of the market. On these figures, it’s hard to argue LRBAs are a ‘market mover’.

“SMSFs investing in residential property, whether through borrowing arrangements or not, should not be singled out from other investors when looking at policy solutions to improve housing affordability.

“The idea that SMSFs have plunged into property investment in recent times also is not borne out by the statistics, with SMSF residential property holdings (both geared and ungeared) being consistent between 4-6% of total SMSF assets in recent times.

“In addition, there is scant evidence to support the notion that the use of LRBAs by SMSFs pose a systemic risk to superannuation or the broader financial sector.

“Consistent with our view submitted to the FSI, we still believe that the clear majority of SMSFs are using LRBAs appropriately to build their retirement savings and therefore should remain an investment option.”