New super rules over property

UNDER new regulations to be introduced by the federal government, accountants, mortgage brokers and real estate agents will no longer be able to provide advice to investors who wish to borrow to buy property with their self-managed super funds.

The new laws mean estate agents, mortgage brokers and accountants will be in breach of the Corporations Act if they provide unlicensed financial advice to trustees buying property with self-managed funds.

Cottesloe-based Hermes Wealth financial adviser Damian Lyons told WA Business News regulation was necessary because of inherent risks involved in borrowing to buy property assets against a self-managed super fund.

“If anything, there is probably much greater risk than your other generic financial advice,” Mr Lyons said.

“We’re talking much larger sums of money, and certainly a lot more invested just in one asset, in one location. Obviously the risks involved are quite great.”

Mr Lyons said leveraging a super fund to buy property was a growing industry in Australia, as all of the major banks, with the exception of ANZ, engaged in the practise.

Self-managed super fund specialist Opez managing director, Cindy Mcdonald agreed it was critical that advisers were licensed, because a number of trustees had received erroneous advice, resulting in significant loss.

“If you have a self managed fund you get lots of concessional tax rates by being what we call a complying fund,” Ms McDonald said.

“If you are a complying fund you pay a maximum of 15 per cent tax on your earnings or capital gains.

“If you become a non-complying fund you can basically lose up to half your fund’s assets in tax, so if you’ve got a million dollar fund its not hard to quantify the potential for loss.

“In addition to that is the risk of double stamp duty.

"If you haven’t established a structure in the right order, that’s when the office of state revenue will say ‘you actually bought it under one entity and now you’re trying to convey it to another party and we’d like our second go at some stamp duty.’”

A change to the rules governing superannuation law in 2007 effectively allowed funds to borrow to buy assets, including property.

Ms McDonald said the changes were originally in response to self-managed funds and larger funds investing in listed securities.

“When the rules came out they were far broader than originally anticipated and they allowed self managed funds to borrow to buy not just listed securities, but any type of asset, which then included property,” Ms McDonald told WA Business News.

“So whereas listed instalment warrants were clearly in the space of brokers and advisers and caught under the Corporations Act, it was less clear whether accountants or advisers talking to SMSF trustees about borrowing to buy properties was a product or not.

“The government’s come out and basically said any borrowing under the section which allows super funds to borrow, any structures being set up under that section is now a financial product.

“It’s a step in the right direction in that industry is trying to get some clarity around being able to regulate this practise, whereas before it was a little unclear as to who could or couldn’t advise.”