SPAA cautions on LRBA risks
Borrowing within a self-managed super fund (SMSF) has significant risks that trustees and practitioners should consider before leveraging their superannuation savings, according to SMSF Professionals' Association of Australia (SPAA) technical director Peter Burgess.
Although limited recourse borrowing arrangements (LRBAs) can be useful to grow retirement savings, a non-complying arrangement can have dire financial consequences for trustees, Burgess warned.
Assets that the SMSF trustee would otherwise be prohibited from acquiring, such as assets that a trustee or a related party owns, generally cannot be bought under a LRBA arrangement.
Assets purchased under a LRBA arrangement also cannot generally be replaced with a different asset (which means significant property alterations cannot be made), according to Burgess.
Burgess also warned that acquiring assets via LRBAs could incur additional costs, while liquidity issues could result from having to make loan repayments from within the fund. In cases where the LRBA arrangements have not been structured correctly, they often have to be unwound at a substantial loss rather than being restructured, Burgess added.
"Used in the right circumstances and structured correctly, there can be considerable benefits associated with these borrowing strategies. But SPAA is concerned that some people are seeing this type of borrowing as a way into a property investment without realising the potential downside," he said.
Recommended for you
AMP is to launch a digital advice service to provide retirement advice to members of its AMP Super Fund, in partnership with Bravura Solutions.
Unveiling its performance for the calendar year 2024, AMP has noted a “careful” investment in bitcoin futures proved beneficial for its superannuation members.
SuperRatings has shared the median estimated return for balanced superannuation funds for the calendar year 2024, finding the year achieved “strong and consistent positive” returns.
The second tranche of DBFO reforms has received strong support from superannuation funds and insurers, with a new class of advisers aimed to support Australians with their retirement planning.
