The bottom line is that the government seems unlikely to introduce retrospective legislation.
“Any government that makes changes that have an immediate effect on existing arrangements will be subject to cries of retrospective policy change,” says Crump.
“I am not saying that a government can’t introduce legislation that has an immediate retrospective effect but it would tend to hurt hard and be harder to introduce.”
Crump cautions SMSF trustees about investing in geared property simply just because it seems like a good idea and on the basis of speculation that the government may reduce the tax benefit.
Crump says if your fund is contemplating gearing a direct property investment, the trustees should identify the most suitable property for their circumstances and the most suitable borrowing arrangements.
“SMSF trustees should go into gearing with their eyes wide open.”
And Colley believes the speculation shouldn’t stop an SMSF proceeding with a planned investment in a quality geared property. He says that if it’s a decent property that you would be willing to hold in your own name, “you would go ahead with the investment in your superannuation fund for similar reasons”.
Crump says that if your fund has invested in a geared property for the right reasons, speculation about possible future tax changes shouldn’t encourage your fund to sell. (Also see Point Four above regarding retrospectivity.)
Treasury is expected to begin a review in December into the borrowing arrangements of SMSFs. In December 2010, the government had promised to conduct this review following its recommendation by the Cooper superannuation review.
This imminent review of gearing is unrelated to the prevailing speculation about a government strike against the tax benefits for geared SMSF property.
In mid-2010, the Cooper review had recommend that the government conduct an examination of SMSF gearing in two years’ time to “ensure that borrowing has not become, and does not look like becoming, a significant focus of superannuation funds”.
Some SMSF members, who may have large amounts of cash at hand, loan money to their SMSFs on interest-free terms to enable the funds to buy assets, included direct property.
David Shirlow, executive director of Macquarie Adviser Services, says there are expectations that it is only a matter of time until the government takes action in regard to these arrangements.
