Yesterday Treasury released draft regulations that, when finalised will have significant implications for accountants and financial planners whose clients engage in SMSF borrowing.

Here follows a brief summary provided by DBA Lawyers of the proposed changes and their potential impact.

Proposed SMSF Borrowing Changes

Broadly, the proposed regulations would extend the Corporations Act 2001 (Cth) definition of ‘financial product’ to include limited recourse borrowing arrangements (‘LRBAs’). This would bring SMSF LRBAs under the financial consumer protection framework. To avoid overlap and increased burdens, the proposed regulations would also provide that LRBAs are not a credit facility and that an Australian Financial Services Licence covering derivatives or securities would also cover LRBAs.

The reason behind the proposed change is to ensure that regulated superannuation fund trustees have access to consumer protections such as indemnity insurance and product disclosure when engaging in LRBAs.

The key implication for advisers is that only those with an Australian Financial Services Licence covering derivatives or securities will be able to recommend LRBAs. The usual superannuation fund carve out for recognised accountants would not apply. Nor is it likely that the proposed limited SMSF advice licence (still to be released as part of the Future of Financial Advice reforms), will cover LRBAs. Accordingly, advisers without an appropriate licence will need to either obtain a licence, or get a licenced adviser involved.

It is important to remember that the proposed changes were originally announced in March 2010 and have only just been released. However, our SMSF advisers are preparing for their introduction.

Click here to see the Exposure Draft – Corporations Amendment Regulations 2012 – Limited Recourse Borrowings by Superannuation Funds (Instalment Warrants)

SMSF Borrowing Changes