The Financial System Inquiry recently released its recommendations. Headed by Mr David Murray, the panel aims to lay out a blueprint for the financial system over the next decade. Previous inquiries (Campbell report in 1981, and Wallis report in 1997) were the catalysts for major reform in the Australian financial sector, including floating of the Australia dollar and deregulation of the financial sector, changes to financial services regulations, the creation of Australian Prudential Regulation Authority (APRA), and changes to ASIC.
One recommendation of the Financial System Inquiry that will impact SMSFs includes the potential re-enactment of the prohibition on borrowing within an SMSF.
Will some SMSFs rush to set up LRBAs?
Up until very recently, SMSFs were not allowed to borrow to purchase property. However, under the relaxed rules, many SMSFs have borrowed to purchase property via a limited recourse borrowing arrangement (LRBA). Many have claimed this increases an SMSFs risk and distorts the property market. Most probably, with this recommendation, we will see a number of SMSFs trying to set up LRBAs before the rules are changed.
If you have an SMSF and would like to consider the implications of the Financial System Inquiry in relation to existing plans for property investment under an LRBA, talk to us before making a decision. Billings and Ellis has many years of experience assisting clients with SMSFs and responding to changes in legislation as they arise.