LRBAs, guarantees in need of review after property market falls
With property markets taking a tumble in recent times, some SMSF clients may need to review the loan arrangements and guarantees they have, particularly where the loan-to-value ratio has significantly dropped, says an industry lawyer.
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.
Miranda Brownlee
22 May 2019
smsfadviser.com
Hot Issues
- Small businesses may ‘collapse under strain of payday super’, IPA warns
- ATO’s hands tied with scrapping on-hold debts, expert says
- What Drives Your Business Growth and Profits?
- Australian Taxation Office (ATO) shifting to firmer debt collection activity
- Why employee v contractor comes down to fine print
- Sharing economy reporting regime for platform operators
- Countries producing the most solar power by gigawatt hours
- Illegal access nets $637 million
- Accessing superannuation benefits.
- Does your business have a company Power of Attorney?
- Labor tweaks stage 3 tax cuts to make room for ‘middle Australia’
- GrantConnect
- 2 in 3 SMEs benefit from instant asset write-off, survey reveals
- Updated guidance on R&D claims
- Do you know how to recover debts?
- Wheat Production by Country
- Types of small business benchmarks
- What is a Commercial Lease?
- ATO warns advisers against suspect R&D tax claims
- The year of workplace law upheaval
- How to Resolve Invoice Payment Disputes
- Raft of revenue tweaks in MYEFO to raise millions
- The Countries that Export the Most Wine in the World
Article archive
- October - December 2023
- July - September 2023
- April - June 2023
- January - March 2023
- October - December 2022
- July - September 2022
- April - June 2022
- January - March 2022
- October - December 2021
- July - September 2021
- April - June 2021
- January - March 2021
- October - December 2020
- July - September 2020
- April - June 2020
- January - March 2020
- October - December 2019
- July - September 2019
- April - June 2019
- January - March 2019
- October - December 2018
- July - September 2018
- April - June 2018
- January - March 2018
- October - December 2017
- July - September 2017
- April - June 2017
- January - March 2017
- October - December 2016
- July - September 2016
- April - June 2016
- January - March 2016
- October - December 2015
- July - September 2015
- April - June 2015
- January - March 2015
- October - December 2014
What our clients say about us