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LRBAs under fire as super legislation debate continues


The introduction of the $3 million super tax has sparked a fresh debate about limited recourse borrowing arrangements, says the CEO of the SMSF Association.

By Keeli Cambourne 12 minute read

Peter Burgess said the association believes that limited recourse borrowing arrangements (LRBAs) are again being used as a “stalking horse” by people who think SMSFs are “an anathema”.

“Once again, critics have hung their hat on the Financial System Inquiry (FSI) report that was handed down in December 2014 recommending that LRBAs be abolished – a recommendation the government chose to ignore,” he said.

“Since then, we have had significant changes to the advice sector, a royal commission and a number of reforms that have substantially reshaped financial advice as a profession.”

Furthermore, he said, two reports from the Council of Financial Regulators in 2019 and 2022 have examined the evidence and concluded that LRBAs are not a threat to the system.


He said the 2022 report “established a clear baseline for monitoring risks relating to LRBAs in the superannuation system” and demonstrated “that borrowing by SMSFs through LRBAs has not posed a material risk to the superannuation system or broader financial system since it was first permitted in 2007”.

He said the SMSFA has been emphatic in its stance against the misuse of LRBAs and has urged regulators to be vigilant against unlicensed advice and dodgy property spruikers who encourage investors to set up an SMSF to purchase property through an LRBA.

“We have always recommended that anyone considering using an LRBA get specialist professional advice. They are a complex debt instrument requiring expert input,” he said.

According to ATO figures, around 42 per cent of assets held under LRBA borrowings are non-residential real property. Burgess said they help small businesses and farms be more financially viable as well as secure their owners’ financial security in retirement.

“Like any debt instrument used sensibly, they enhance people’s personal wealth. It’s not a long bow to draw to say many now in retirement are more financially secure because they used leverage – no different to the millions of Australians who borrow to buy their house,” he said.

“Allegations that LRBAs are on an exponential growth path are simply wrong. A common mistake is to take the value of total assets held in an LRBA arrangement as the total value of LRBA debt and asset values have increased over time.”

Data shows that on 30 June 2022, the value of SMSF borrowings was $22.6 billion, having peaked at $25.2 billion in 2019–20. Over the same period, the total value of assets (property and other investments) subject to an LRBA were $56.3 billion and $52.91 billion, respectively.

“Although over the past 10 years there has been an upward trend of SMSFs adopting LRBAs, the proportion of SMSFs using LRBAs is showing signs of stabilising or slightly decreasing in recent years. Only 11 per cent of SMSFs have an LRBA and LRBA borrowings represent just 2.7 per cent of total assets for the sector,” Burgess said.

The ATO’s annual statistics for 2021–22 show that SMSF investment in residential property, both directly and through LRBAs, stood at $76.9 billion. With CoreLogic valuing Australia’s residential market at $10.8 trillion, it means SMSFs hold about 0.7 per cent of the market.

“Since LRBAs became an investment tool in 2007, they have been mired in controversy, a convenient whipping boy for those with an axe to grind against SMSFs,” Burgess said.

“Everyone is entitled to their opinion. I only wish they would base their arguments on fact, not fiction.”


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