Damian O’Connor is a Chartered Tax Advisor and the Principal of Tax + Law. Tax + Law is a boutique legal practice that specialises in all things tax, as well as providing advice on commercial, corporate and family legal issues.
Legalwise Seminars interviewed Damian about the key challenges and opportunities in the SMSF industry today. Read his responses below and hear more from Damian at his seminar, SMSF Borrowings: Limited Recourse Borrowing Arrangements.
Can you tell us a bit about yourself?
I provide opinions on complex tax issues, structuring advice, documentation and representation in dealings with revenue authorities. I also regularly present seminars for professional education providers, law societies and other bodies on topics including superannuation, private companies, estate and trust issues, taxation of property dealings and tax disputes. I previously worked at the ATO for more than 20 years as an auditor and investigator, among other roles, and I have been engaged in private legal practice since 1997.
Your seminar is about “SMSF Borrowings: Limited Recourse Borrowing Arrangements”. Why should practitioners attend?
We know that using a self-managed superannuation fund can provided fantastic tax outcomes, but there is no such thing as a free lunch in the tax world. SMSFs, and superannuation generally, are heavily regulated and the Tax Commissioner has a whole range of powers to ensure SMSFs don’t stray from the purpose of providing retirement benefits.
SMSFs generally cannot borrow to acquire assets for a whole lot of good policy reasons, including the risk of super savings being lost through a bad investment. Limited Recourse Borrowing Arrangements (LRBA) are one way that a SMSF can leverage an investment, subject to satisfying all the complex compliance rules.
This session will look at the framework that needs to be navigated, as well as some key practical issues that need to be kept in mind when considering LRBA arrangements.
What are the major trends and developments in the SMSF industry?
There is always the possibility that the Government will try and change superannuation rules, and perhaps tighten up or even do away with Limited Recourse Borrowing Arrangements. Even without major changes we can expect further complexity as perceived loopholes are closed.
Some media reports talk about people with SMSFs overstretching financially, particularly with LRBAs. This is a red flag to the Government, who don’t want super savings at risk as that might mean more people looking to government support in retirement.
What are the challenges facing practitioners in taxation and compliance of SMSFs, in relation to LRBA rules?
"Simply downloading some LRBA documents from the internet might be cheap, but it could also be a recipe for disaster."
From a business perspective, one of the challenges all practitioners face is convincing clients that all the time spent navigating and managing compliance issues is worthwhile. This is a crucial point with the use of SMSFs and LRBAs – arrangements like this are inherently complex and won’t suit every client. Simply downloading some LRBA documents from the internet might be cheap, but it could also be a recipe for disaster.
What are the common mistakes accounting and legal practitioners make in this area?
There is a danger, I think, of only focussing on the detail and overlooking the big picture because the rules are so complex. For example, SMSF LRBA investments must fit in with the fund investment strategy, which must take into account the specific circumstances of members, among other things.
Having a Limited Recourse Borrowing Arrangement may also complicate things when you are trying to navigate the Transfer Balance Cap rules.
What are the key takeaways and benefits for practitioners who will attend your seminar?
My session aims to give a framework for understanding the rules we need to deal with, as well as some of the practical issues that come up for advisers.
Would you like to hear more from Damian? Attend his seminar, SMSF Borrowings: Limited Recourse Borrowing Arrangements in the Royce Hotel, St Kilda Road, Melbourne on Thursday, June 21, 2018.