On 20 October 2015, Treasury released its response to the Murray Inquiry, including its recommendation to remove the exception to the general prohibition on direct borrowing for limited recourse borrowing arrangements by superannuation funds.
In a response that will comfort most industry participants, the Government stated that while it has taken note that there “are anecdotal concerns about limited recourse borrowing arrangements, at this time the Government does not consider the data sufficient to justify significant policy intervention.”
The Government has signalled its intention to review its position in three years and in the intervening period the Council of Financial Regulators and the ATO will be tasked with monitoring leverage and risk in the superannuation system and reporting to Government.
Limited recourse borrowing arrangements by SMSFs are, however, becoming more difficult. Residential mortgage lending practices are under scrutiny from the Australian Prudential Regulatory Authority in what many consider part of a broader strategy to regulate property inflation. In response some banks have moved to limit or eliminate residential lending to investors including SMSFs. Commercial lending practices appear not to have been affected at this stage. Regulatory authorities in the SMSF sector are also concerned with the emergence of property spruikers encouraging purchasers to set up SMSFs so that they can borrow to buy investment properties which may lead to further regulation of the sector.
The overarching aim of the superannuation legislation should be to protect superannuation savings and provide lower reliance on the age pension as the population ages. This protection of savings need only limit investment options where there is a clear case for risk management and at this time, the case has not been made out.
If you have any queries about the policy response or any superannuation or legal matters generally, we invite you to contact our team.