Speaking in a seminar in Sydney, DBA Lawyers director Daniel Butler said the property market has been under some stress recently, and while it may see a bit of a rebound with Labor’s property tax changes off the table, some SMSFs may be impacted by the recent fall in property values.
Mr Butler said the ATO has previously raised concerns about the amount of property loans held by SMSFs and guaranteed by assets outside of super such as the family home.
“If the market collapses, this is going to affect retirement savings and personal assets,” Mr Butler said.
Mr Butler explained that there were two types of guarantees: unsecured guarantees and secured guarantees.
“We have noticed a movement out there, typically with non-bank institutions, that they want that guarantee to be supported by a security or a charge or mortgage over the home or property owned by that guarantor,” he said.
While the fact that it is a limited recourse loan means that the security including any related guarantees should be limited to the value of the acquirable asset, but often they are not.
“You have to read and check it. I read one the other day that said that any asset you hold on trust is also up for grabs. Some of them also say, well, if it’s interest and cost and damages, we can also claim that back, even default interest,” he said.
SMSF professionals and their clients need to be very mindful of the extent of these guarantees, he cautioned, particularly if the client is entering negative equity.
The documents that deal with the guarantee for the loan arrangements may need to be reviewed for those clients who are in that risk category, he advised.
“That would be those that bought an apartment and it’s now close to negativity equity and the they’re getting light on the loan-to-value ratio (LVR) because the property value has sunk but the loan is still there and they’re no longer over their 70 per cent threshold,” he said.
This also needs to be looked at with related-party loans, because if the LVR is no longer under the 70 per cent, then they may need to restructure.
SMSF practitioners should offset their liability by encouraging their clients to get these documents reviewed.
22 May 2019
For more than 20 years, Sam has been a financial planner helping individuals and families achieve their financial planning goals, by providing advice on Investment Planning; Insurance Planning; Tax Planning; Retirement Planning; and Estate Planning. Working with a network of highly skilled professionals in Sydney he is dedicated to providing high-quality advice and integrated wealth management solutions that simplify and enhance the quality of his clients' lives.
Sam established his own firm in 1997 and has overseen its steady development and growth. Attention to detail, good listening skills and great empathy are symbols of his appreciation by his clients. He has built long-term relationships with his growing client base and aims to provide excellent customer service.
Sam began his financial planning career in 1993 after completing a Bachelor of Science degree in 1991. Since this time he has accumulated many professional qualifications such as:
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She holds a Master's degree in Applied Finance through Macquarie University, and she is a member of the Million Dollar Round Table.
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Being a highly motivated professional, Jane is always eager to help her clients on a wide range of financial planning needs.
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