Popular borrowing strategy in government’s sights
Using superannuation to borrow spiked in popularity from 2007, but it has become a battleground for both sides of government in the lead up to the election.
While borrowing through a self-managed super fund (SMSF) has been allowable for about 12 years, it has always been a contentious issue.
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For some, it’s falsely inflated the housing market. For others, it’s given an unfair advantage to those with an SMSF, versus those without.
Now, with an election set for May this year, both sides of government are using it as a key policy battleground.
Shadow treasurer Chris Bowen has accused the government of ignoring concerns about SMSF borrowing, which hints that a Labor government may look to curb it should they get elected.
In response, Treasurer Josh Frydenberg posted comments highlighting that borrowings by SMSFs account for only 2.9 per cent of the total Australian and overseas assets held in SMSFs, noting that it was “only a small proportion of their overall assets”.
“It is something which has to be monitored which is exactly what the government has done,” Mr Frydenberg said in the post.
“In response to the Financial System Inquiry and our concerns about the availability of data in this area, we tasked the Council of Financial Regulators to review non-recourse lending to SMSFs and to use enhanced ATO data in this area to report back to the government within three years in order to inform consideration of whether changes to the borrowing regulations might be appropriate in the future.”
Can I borrow in an SMSF?
Although SMSF borrowing spiked in popularity after first becoming allowable, there are only a few circumstances which allow you to borrow through an SMSF:
- borrowing money for a maximum of 90 days to meet benefit payments due to members or to meet an outstanding surcharge liability (the borrowings can’t exceed 10 per cent of your fund’s total assets)
- borrowing money for a maximum of seven days to cover the settlement of security transactions if the borrowing does not exceed 10 per cent of your fund’s total assets (you can only borrow to settle security transactions if, at the time the transaction was entered into, it was likely that the borrowing would not be needed)
- borrowing using installment warrants or limited recourse borrowing arrangements that meet certain conditions.
You can read more about borrowing in an SMSF here.
