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By guest contributor, Lauren Ryan, Thinktank Commercial Property Finance
Limited recourse borrowing arrangements (LRBAs) are never far from the news. Fuelled by the media’s seemingly insatiable appetite for stories about this borrowing instrument, regulators, politicians, government inquiries and industry funds have variously offered critiques on why they should be restricted or even banned.
ASIC was the latest to join the chorus. In a response to a recent question on notice from the Parliamentary Joint Committee on Corporations and Financial Services, ASIC flagged a need for tighter LRBA rules (such as funds requiring a minimum balance before they can borrow) and even went so far as to suggest banning them.
Before the last federal election, Labor policy was to prohibit LRBAs, a position it still holds. And the final report of the Financial Services Inquiry chaired by David Murray recommended their abolition – the one recommendation then Treasurer Scott Morrison did not embrace. And industry funds have consistently been prophets of doom on the issue of LRBAs – despite being conflicted on the issue.
But are LRBAs a time bomb waiting to go off inside SMSFs, a superannuation sector now presiding over more than $750 billion in FUM? The evidence would suggest not – and that’s despite their robust growth, with ATO figures showing LRBAs made up 4% of all SMSF assets at $25.4 billion at 30 June 2016, and in the two years to 30 June 2016, jumping 68% compared with 18% for all SMSF assets.