Murray report: Ban on borrowing, but SMSFs left mostly untouched

The final report of the Financial System Inquiry has called for the government to stop direct borrowing from self-managed super funds, but has left SMSFs mostly untouched by its sweeping recommendations.

David Murray’s report, which was released yesterday, calls for a shakeup of Australian superannuation as a whole, recommending the industry seek clear objectives, review and potentially replace the MySuper system with a more competitive scheme and offer pension products to retirees.

But the SMSF sector received “a glowing report” from the inquiry, according to Graeme Colley, director of technical and professional standards at SMSF Professionals’ Association of Australia (SPAA).

“Given the massive increase in self-managed funds, the report shows the industry is indirectly supported, otherwise they would have wanted to control it,” Colley told SmartCompany.

Although it was hinted at in the interim report, no recommendations were made on imposing controls over the expenses of setting up and administrating SMSFs or the minimum balance requirements of SMSFs.

But a ban on limited recourse borrowing arrangements from inside super funds, which was also signalled in the interim report, did make it to Murray’s list of recommendations.

Colley says while there is little evidence of a risk; the inquiry followed the lines of a Reserve Bank report from earlier in the year, which argued borrowing had the potential to become a bigger problem.

“The thinking is, maybe if this got out of hand it could propose a real risk,” says Colley.

David Lane, director of wealth management at Pitcher Partners, told SmartCompany it is likely the ban on borrowing will have a “significant impact” on the residential real estate market and potentially many small business owners.

READ MORE: The 10 pros and cons of your SMSF owning your business premises

“Investment borrowing has been driving much of the recent boom in residential property prices, especially apartments,” says Lane.

“While it is unclear how many of these are from SMSFs, anecdotally we believe that there are a significant number.”

“Countless small business owners utilise the limited recourse borrowing rules to own their business premises. With a blanket ban on borrowing within super, there may be a negative impact on small businesses around the country.”

Colley says the SMSF sector will now await the tax white paper for any potential taxation changes to DIY funds.

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