In the final report for the Financial Systems Inquiry
handed down on Sunday 7 December 2014, chairman David Murray
Government should restore the general prohibition on
direct borrowing by superannuation funds by removing Section 67A of
the Superannuation Industry (Supervision) Act 1993 (SIS
Act) on a prospective basis.
The Inquiry is concerned that LRBAs pose a risk to both the
superannuation and financial systems. By restating the blanket
prohibition on borrowing to acquire assets, the inquiry is of the
this will limit the unnecessary build-up of risk in the
superannuation and financial system
ensure the superannuation system is used as a retirement
savings vehicle rather than a broader wealth management
In particular, the Inquiry was of the view that:
Restoring the original prohibition on direct borrowing
by superannuation funds would preserve the strengths and benefits
the superannuation system has delivered to individuals, the
financial system and the economy, and limit the risks to
However, the Inquiry recommended grandfathering existing SMSF
borrowings using LRBAs until the asset is disposed of.
If you have clients that are looking to borrow to acquire an
asset, care should be taken particularly if the purchase contract
provides for an extended contract period such as house and land
contracts and off the plan contracts.
If the Government adopts the Inquiry's recommendation, SMSFs
may be placed in a difficult position where a purchase contract has
been signed if:
the legislation is changed before the acquisition of the asset
using borrowings is complete; and
the grandfathering rules do not extend to arrangements where
purchase contracts have already been signed.
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guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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