Buying investment property via your SMSF
While is it relatively unknown; it is possible to buy investment property in your SMSF. As well as being able to buy property with your SMSF, it is also possible to borrow money using a limited recourse borrowing arrangement. This arrangement means that the lender only has "security against the single property investment and not the other assets in the super fund".
Borrowing for SMSF property has quadrupled over the past 18 months, while it has grown in popularity, the take up is not as high as expected. This may be due to a glut in the market as rents fall, prices stagnate and supply upstages demand particularly in the unit markets in Sydney, Melbourne, and Brisbane.
In September the QBCC released a discussion paperwith proposals to strengthen the MFR and improve regulation. Changes to legislation may follow which would be implemented in a phased approach.
The discussion paper addressed 5 key areas for potential reform. Options up for discussion are provided.
Businesses with higher turnover will have to report more information to QBCC on an annual basis. Options considered include a step back to the pre-2014 reporting regime and all licensees reporting NTA and current ratio data annually to QBCC.
2. Fostering improved accountancy practices that meet the objectives of the Minimum Financial Requirements
The QBCC consider that a licensee’s accountant providing an MFR Report may lack independence and be reluctant to raise issues with their client. The proposals considered include establishing a panel of accountants to review suspect MFR Reports, changing the basis under which accountants may be excluded from conducting reviews and making it more difficult to change MFR information already submitted.
QBCC’s experience with building collapses involving companies reliant on deeds of covenant and assurance indicated that the covenantor was not always able to cover the licensee’s debts. The QBCC propose that the covenantor’s statement of financial position be revised to include further information identifying assets and liabilities and how these have been treated. They would also require the covenantor to certify the statement as true and correct.
QBCC note that in practice, when a licensee enters insolvency these types of loans are often not
repaid. They have three proposals in this area, the first is to exclude all related loan assets from NTA, the second is for the licensee to obtain a formal security over the loan which would provide the licensee some recourse to the related entity’s assets if the related entity fails to meet their obligations to pay the loan. Their third proposal is to provide more clarity on how related entity loans are assessed.
QBCC indicate that the current criteria for how assets are treated under the MFR policy may not be stringent enough. Their proposals include the exclusion of trade debtors over a certain age unless verified as recoverable, only allowing registered vehicles to be included as an asset, the requirement for a report from a registered valuer if assets are recorded at a value, real estate assets on the market for more than a year to be classified as non-current assets and certain monies held in project bank accounts to count towards NTA and revenue.
We will be following these developments closely.