The Federal Government has reportedly agreed to ban new SMSF borrowing for residential property as part of negotiations to pass broader investor tax reforms through the Senate.
While legislation is yet to be finalised, the reported changes could have significant implications for investors considering residential property through their self-managed super fund (SMSF).
What is proposed to change?
Under the reported proposal:
- New SMSF borrowing for residential property would be prohibited.
- The ban would apply to Limited Recourse Borrowing Arrangements (LRBAs).
- The change would commence 45 days after Royal Assent.
- Existing SMSF residential property loans are expected to be grandfathered.
- Transactions already in progress may be eligible for transitional arrangements.
- Commercial property borrowing through SMSFs does not currently appear to be affected.
Why does this matter?
SMSFs have long been able to borrow to purchase property through LRBA structures.
Supporters of the proposed changes argue that borrowing within superannuation has enabled some investors to acquire residential property within a concessional tax environment and has increased leverage within the superannuation system.
If implemented, the changes would remove a strategy currently used by many SMSF investors to acquire residential investment property.
What does the 45-day transition period mean?
The proposed ban would not take effect immediately.
Instead, it would begin 45 days after Royal Assent, the final stage of the legislative process.
For investors currently pursuing an SMSF property purchase, important considerations may include:
- Has a contract been signed?
- Has finance been formally approved?
- Has the bare trust been established?
- Is settlement likely to occur within any transition period?
- Will the final legislation provide protection for transactions already underway?
What should investors do now?
If you are considering purchasing residential property through an SMSF, timing may become increasingly important.
Before committing to a purchase, review:
- Your SMSF structure
- Finance approval status
- Deposit requirements and liquidity position
- Bare trust arrangements
- Expected settlement timing
- Legal, tax and financial advice requirements
If you are already in the process of purchasing a residential property through your SMSF, now is the time to review your position. A delay in finance, trust establishment or settlement timing could become critical if the proposed legislation proceeds.
Key Takeaway
If enacted, this would represent one of the most significant changes to SMSF residential property lending in recent years.
While existing SMSF residential loans are expected to remain in place, new borrowing for residential property may soon be unavailable.
Investors who have already identified a property, signed a contract or are currently seeking SMSF finance should have their transaction reviewed as soon as possible to understand how the proposed changes may affect their plans.
For a confidential discussion about your SMSF lending options and transaction timelines, contact:
Robert Sestan
Park Road Finance
0410 514 887
robert.sestan@parkroadfinance.com.au
parkroadfinance.com.au
General information only. This information is not personal lending, legal, tax or financial advice. SMSF property investment is complex and may not be suitable for all investors. Professional advice should be obtained before making financial decisions.