SMSFs investing restrictions unfair: Poll

Self-managed super funds have been unfairly subjected to too much red tape, according to Financial Standard's latest survey.

Last week's poll reveals more than half (51%) of readers believe SMSFs bear the brunt of numerous government restrictions and regulation - more than a third (38%) of these strongly agree this is unwarranted.

In last year's Federal Budget, Treasurer Scott Morrison announced new measures that would eliminate limited recourse borrowing arrangement (LBRA) loopholes for SMSFs.

From 1 July 2017, an LBRA outstanding balance will be included in a member's total annual superannuation balance. LRBA principle and interest repayments from a member's accumulation account will also be credited in the member's transfer balance account.

In effect, this has made some SMSF members think twice about taking on a LRBA to invest in property, as it may trigger the $1.6 million transfer balance cap in retirement.

One month later, financial advisers said they were grappling with the regulatory changes to LRBAs.

According to BT technical consultant Tim Howard, the proposal to combine outstanding LRBA debt to calculate clients' total super balances was a key concern for many advisers.

The second-most common issue, related to the relationship between LRBAs and the transfer balance cap, where SMSF clients "would need to record a credit against their transfer balance account where an LRBA held in retirement phase is repaid from funds held in accumulation phase," he said.

"This measure will likely only affect a minority of clients and it's important to note that existing LRBAs in place prior to 1 July 2017 will not be impacted," Howard said.

Early this year, the Government released its draft legislation regarding taxation integrity measures for the superannuation system.

The first concerns a member's share of the outstanding balance of a limited recourse borrowing arrangement in their total superannuation balance, and the other ensures that non-arm's length expenditure is taken into account when determining whether the non-arm's length income taxation rules apply to a transaction.

These measures are intended to ensure that LRBAs or related party transactions cannot be used to circumvent contribution caps - they are not intended to prevent the use of LRBAs, the Government said.

This week, we aim to find out: Will the Royal Commission fundamentally transform financial advice and result in more red tape for the industry?

Read more: LRBASMSFFinancial StandardBTLimited recourse borrowing arrangementTim HowardFederal BudgetRoyal CommissionTreasurerScott Morrison
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