Potential changes to super gearing
There could be changes to the way gearing in super operates, possibly in the 2010 Federal Budget, although there has not yet been any official indication from the Government, according to a Multiport report on self-managed super funds (SMSFs).
More SMSF trustees are examining the gearing in super rules and implementing the strategy to obtain higher levels of exposure to direct property, according to the report.
The minutes of an Australian Taxation Office (ATO) meeting last year stated that the ATO is working with Treasury in relation to a possible announcement of a law change, according to Multiport, while the fact that the Cooper Review asked for views on the current gearing rules is another indicator that such changes could be on the way.
Another possible change would be restricting the lender to the SMSF to be at arms length, which meant there would be no question about the viability or commerciality of the loan and the asset being acquired, Multiport said.
Most major financial institutions have lending products aimed at SMSF borrowings primarily for property acquisition, the report stated. To provide additional protection they sometimes seek personal guarantees from the individuals to circumvent the statutory limited recourse of any loan.
This ensures that while the SMSF has not placed a charge from the lender on any assets beyond that which has been acquired with the loan, any potential short fall is covered by the personal guarantee.
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