It appears abundantly clear from the FSI panel and a range of submissions including the Reserve Bank and Big 4 banks that the days are coming to a close for the use of leverage inside super. You only need to look at the default position of the panel into the FSI interim report to understand that they believe superannuation is better without leverage:
Restore the general prohibition on direct leverage of superannuation funds on a prospective basis.
Whilst a range of submissions support leverage within superannuation, the only way I can see it surviving is through further reform. What type of reform you say? I believe leverage can only exist into the future where SMSF loans are provided by financial institutions that fall under the auspices of APRA. If you look at many of the topical issues around LRBAs, it have been with related party arrangements – zero interest loans, use of SISR 13.22C related trusts and more.
In reality, the removal of related party arrangements make things clear-cut. If a bank won’t lend on the arrangement, then it wouldn’t be arm’s-length. This appears consistent with the ATO’s changed views around non-arm’s length income (NALI) through a range of recently issued private rulings on related party zero interest loan limited recourse borrowing arrangements.
It is important to note that this is a review and not a mandate for legislative change. However, following similar concerns in the Super System Review (Cooper Review) in 2010, one must have some concern as to whether the writing is on the wall for LRBAs.
I’d be interested to hear your thoughts on the topic…