While self-managed super fund (SMSF) borrowing has grown steadily over the five years to 30 June 2012, there is no suggestion that it is either exponential or irresponsible, according to Graeme Colley, director, technical and professional standards for the SMSF Professionals' Association of Australia (SPAA).
Commenting on the latest figures released by the Australian Taxation Office (ATO), Colley said SMSF borrowing was still a mere fraction of the total asset pool.
"What has to be understood is that although SMSF borrowings increased from 1.1 per cent a year in 2008 to 3.7 per cent in 2012, this percentage still only amounts to 3.7 per cent of the total SMSF asset pool of more than $500 billion," he said. "This hardly suggests that trustees are borrowing without giving it due consideration.
"SPAA's understanding of the current situation is that borrowing has not increased significantly since 2012 and remains a very small proportion of the total value of loans made by banks and other financial institutions."
Colley also pointed out there was a significant difference between borrowings within super funds as compared to other retail-type loans, and that they generally took place in accumulation phase rather than pension phase.
"The lending criteria placed on superannuation funds that borrow for limited recourse borrowing arrangements is more stringent than loans taken out by individuals for residential property and commercial property," he said. "But this is a fact often overlooked.
"Remember, too, these borrowings, which have strict limitations placed on them, are not just for property assets but can be used for any asset class permitted under the superannuation legislation," Colley continued. "From SPAA's perspective this is further evidence that SMSF borrowings are, in the main, being done in a responsible way and that trustees are seeking professional advice before taking on debt."
Originally published by SMSF Essentials.
