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The ATO has revealed the level of risk it believes limited recourse borrowing arrangements pose to the SMSF sector.
In spite of increased public scrutiny, LRBAs represent a “medium risk”, according to the ATO’s director for SMSF regulatory and income tax products, Nathan Burgess.
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Mr Burgess told the SMSF Podcast Show that a lot of the speculation regarding LRBAs doesn’t match what the ATO is seeing “on the ground.”
While there has been growth in LRBA use amongst SMSFs, Mr Burgess indicated the increases are coming from a “very low base”.
“Yes, it’s something we need to look at and something we have to keep watching over… we don’t think that there will be a failure of regulation of the industry,” Mr Burgess said.
Mr Burgess also said despite perceptions that SMSF investors “stretch themselves” in relation to their borrowing capacity, average loan arrangements are relatively conservative.
“We work with financial institutions, we find that they are very conservative in this area as well, and that’s great… because that means that it’s unlikely that there will be a failure of this regime,” he added.
“I think it’s probably a good reflection on our financial institutions regime here… they don’t want a failure here either. I think it shows the maturity of the market, and sometimes I think that gets missed in the commentary.”
