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Sector takes aim at ISA’s ‘distorted SMSF analysis’

Target, aim, businessman

The SMSF industry has hit back at analysis from Industry Super Australia, which argued that SMSF balances and limited recourse borrowing arrangements were driving up property prices. 

Earlier this week, Industry Super Australia (ISA) released a seething analysis of SMSFs and took aim at low balance funds and the substantial growth in use of gearing strategies.

The paper referred to the $25.4 billion currently in LRBAs and accused SMSFs of driving up property prices through the use of LRBAs. LRBAs, or limited recourse borrowing arrangements, are where the fund borrows money to purchase an investment. 

SMSF Association chief executive John Maroney said while there may be $12 billion currently invested in residential property through LRBAs, this has to be put in the context of the $6.05 trillion housing market as of June 2016.

“In other words, LRBAs only comprise 0.20 per cent of the housing market – hardly a figure to shake the market,” said Mr Maroney.

“This selective use of statistics to portray SMSFs as a ‘market mover’ in the residential property market is just one example of how the SMSF sector is being ‘unfairly targeted’ regarding property investment.”

The ISA analysis also criticised the high growth rate in SMSF borrowings from $497 million in June 2009 to $25.4 billion by June 2016.

“What they fail to add is that LRBAs still only make up 4 per cent of SMSF assets at $25.4 billion that they started from a small base in 2009, and a change in the way the ATO reported LRBA statistics in 2013, when the figure was revised from $2.6 billion to $8.3 billion, has distorted the statistical analysis,” explained Mr Maroney.

He also stressed that the ATO statistics being used in the analysis have been compiled from the SMSF annual return, which is a regulatory tool and can limit the quality of SMSF data on investment issues.

“Better information on LRBAs will be sourced from the 2017 SMSF Annual Return that requires more granular information from SMSFs on their LRBA investments,” he said.

The ISA analysis also received criticism from others in the SMSF industry, with chartered accountant Wayne Wanders stating that the ISA analysis “compares apples with oranges and provides false and misleading information”.

Mr Wanders was particularly critical of ISA’s analysis of performance returns between APRA-regulated funds and SMSFs.

“It would take Industry Super Australia less than five minutes of reading the glossary attached to the ATO publication on which this briefing note is based to determine that the returns reported by the ATO in its analysis of SMSF performance are net of member’s insurance premiums,” said Mr Wanders.

In the Industry Super Australia’s briefing note, Mr Wanders said they compare the performance of industry funds excluding insurance premiums paid by members, with SMSF performance including insurance premiums paid by members.

“This is either an example of poor research and analysis by Industry Super Australia, or a case of deliberate false and misleading reporting,” he said.

Sector takes aim at ISA’s ‘distorted SMSF analysis’
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