A new recommendation was released by the Murray financial services inquiry last December, which proposed an end to investment in residential and business properties using SMSFs.
The recommendation came in response to rising concerns about the level of SMSFs engaging in limited-recourse borrowing arrangements (LRBA), which allow funds to borrow to acquire a property under a set of limited circumstances.
The level of LRBA has more than tripled from $2.5 billion at the end of June 2012 to $8.7 billion at the end of June 2014, according to the Australian Taxation Office.
The inquiry said direct borrowing by superannuation funds was inconsistent with the objectives of superannuation: to be a savings vehicle for retirement income rather than a wealth management vehicle.
The use of SMSFs for residential and business properties has been a growing problem. The number of SMSFs using geared products grew by more than 11 per cent to 38,000 in the year to April 2014, according to the Grattan Institute.
Though, not all are as concerned about the use of SMSFs, with some such as the SMSF Professionals’ Association of Australia director of technical and professional standards, Graeme Colley saying such concerns about SMSF leverage is an overstatement.
“Nine billion dollars is not even one suburb in Sydney when you’re looking at the numbers, and as a proportion of total assets in self-managed super funds it’s only about 1.5 per cent to 1.8 per cent. It doesn’t even get onto the radar – there is more in that than art work and collectables,” he says.
The increase in SMSF leverage has been blamed on poor-quality advice.
Colley says, “Just having knowledge of superannuation is not good enough.”
SMSF sector requires specialist training before a professional can advise on the area.
Too many financial advisors are giving poor advice about setting up an SMSF as part of a geared investment strategy, as evidenced by over 100 adviser files found by a recent Australian Securities and Investments Commission adviser review.
At Fortis Accounting Partners, we offer fully professional advice and as a Chartered Accounting firm, we adhere strictly to the Institute of Chartered Accountants in Australia. Our team of experts have experience in a range of advisory services, so you can rest assured you are receiving the best advice.
If you have any queries regarding SMSF, please don’t hesitate to get in touch wit the team on 02 9267 0108, or via info@exemplary-financial.flywheelsites.com.
