While the Labor Government has committed to the abolition of limited recourse borrowing arrangements (LRBAs) for self-managed superannuation fund (SMSF) trustees, property lender Thinktank has said any move to do so would be detrimental to small business owners seeking to sync their business operations with their long-term retirement income strategies.
Jonathan Street, chief executive of Thinktank, said opponents of LRBAs had referenced the Council of Financial Regulators’ (CFR’s) recent report to call for the abolition of the debt instrument, yet the report actually stated that removing business real property (BRP) LRBAs would be detrimental to SMSF trustees.
“As the report says, removing the exemption for borrowing could have an adverse impact on some trustees who use LRBAs as part of a well-diversified broader investment or business strategy, and may limit their ability to invest in a particular property; such as trustees’ own BRP,” he said.
Street said the statistics in the report combined with Thinktank’s own observations of working with LRBAs, were such that business owner-occupied premises made up a large part of the demand for strategically structured finance, and that the SIS Act regulations were specifically designed to allow for them.
Street said, on the other hand, the use of LRBAs for potentially conflicted residential property acquisitions had long been recognised as undesirable for the industry, but little action had been taken to remedy the situation.
“Thinktank’s view is that the glaring solution lies very much in the prudent enforcement of the existing legislation regarding the LRBAs - precisely what the Financial Services Royal Commission advocated,” Street said.
“By doing so it could clean up that element of the market where LRBAs may be an ill-advised investment and allow the market to continue operating for those small business owners, in particular; who clearly benefit from this debt instrument being available to them.”