ATO Figures Show SMSF Borrowings Prudent

Posted in Wealth
15/01/2014 Level One

This is a media release by the SMSF Professionals’ Association of Australia (SPAA), dated 13th January 2014.

The growth in SMSF borrowings has grown steadily over the five years to 30 June 2012, according to the latest Australian Taxation Office (ATO) figures.

Graeme Colley, Director, Technical and Professional Standards, of the SMSF Professionals’ Association of Australia (SPAA), says although the ATO figures  show there has been a solid growth in borrowings over this period, there is no  suggestion it is either “exponential or irresponsible”.

“What has to be understood is that although SMSF borrowings increased from 1.1% a year in 2008 to 3.7% in 2012, this percentage still only amounts to 3.7% of the total SMSF asset pool of more than $500 billion. This hardly suggests that trustees are borrowing without giving it due consideration. [In dollar terms, the average amount borrowed was $122,000 in 2008 compared with $357,000 in 2012.]

“SPAA’s understanding of the current situation is that borrowing has not increased significantly since 2012 and remains a very small proportion of the total value of loans made by banks and other financial institutions.

“The lending criteria placed on superannuation funds that borrow for limited recourse borrowing arrangements is more stringent than loans taken out by individuals for residential property and commercial property – a fact often overlooked.”

Colley says it’s also interesting to note that 90% of borrowing takes place in the accumulation phase rather than pension phase. “This is the time when cash flows of funds from investments and contributions are positive and generate income to service any outstanding debt.

“Remember, too, these borrowings, which have strict limitations placed on them, are not just for property assets but can be used for any asset class permitted under the superannuation legislation.

“From SPAA’s perspective this is further evidence that SMSF borrowings are, in the main, being done in a responsible way and that trustees are seeking professional advice before taking on debt.”


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