Not unexpectedly, this problem has given rise to technically complex and questionable strategies to circumvent the law, including the use of associated unit trusts. Time will tell whether these creative ideas will actually work.
These developments should cause warning bells to go off very loudly in the heads of sensible and conservative professional advisers. Many years of practical experience have shown that complex arrangements involving SMSFs have great potential to fall apart due to technical faults, administrative errors or failures on the part of trustees (and sometimes their advisers) to understand exactly what they’ve done and the risks involved in those actions.
Should SMSFs once again develop a reputation for pushing the tax boundaries, they will soon face a bleak future. That would be a sad result because a highly bureaucratic approach to the sector was never intended, provided that SMSFs remained simple and substantially risk-free repositories of ungeared money for the retirement of mums, dads and the occasional senior executive.
Therefore, SMSF trustees should avoid the temptation to borrow. By all means play the risk game with non-superannuation assets, but leave the super fund as a safe harbour for retirement. That way, the SMSF sector will remain healthy, strong and relatively untouched by the heavy hand of regulation.
Robert MC Brown is a chartered accountant with more than 30 years’ experience in taxation, superannuation and financial planning. He is independent chairman of the ADF Financial Services Consum- er Council, and a member of the Government’s Financial Literacy board.
Robert, you are showing your age by becoming ultra conservative. I agree with your comments as I am just as old as you.