Back in August, we wrote an article detailing the Australian Tax Office (ATO) intention to target owners and auditors of close to 20,000 SMSF’s who have pushed savings into single investment properties and cryptocurrency over possible breaches of the law. However, the ATO has now confirmed that the SMSF’s contacted via letters as part of the probe all used limited recourse borrowing arrangements (LRBA’s) to acquire their single asset or asset class.
In an update on the ATO website, the regulator stated “At the end of August we contacted about 17,700 SMSFs and their auditors where 2018 SMSF annual return data indicated these SMSFs may be holding 90 per cent or more of their retirement savings in one asset or a single asset class.”
“The SMSFs contacted also used an LRBA to acquire the single asset or asset class.”
“In 99 per cent of the SMSFs contacted, the asset in question was property.”
It stated of the 180,000 funds that have invested 90 per cent or more of their retirement savings in a single asset or asset class, those that received a letter from the ATO were selected based on a report to the federal government in February by the Council of Financial Regulators and the ATO.
“The ‘Leverage and Risk in the Superannuation System’ report highlighted concerns that less-diversified SMSFs with LRBAs are exposed to asset concentration risk, which in the event of a fall in the asset’s price could lead to a significant loss in the value of the fund.” it said.”
“We were concerned that these SMSF trustees may not have given due consideration to diversifying their fund’s investments and the risks associated with a lack of diversification when formulating and reviewing their investment strategy.”
This information now publicly revealed by the regulator confirms the previous concerns raised by CFMG Capital and other property funds that investors are being coerced into unsuitable investments by ‘one stop shop’ operations who convince customers to establish an SMSF for the sole purpose of purchasing a single property, usually with a high (undisclosed) commission paid the operator by the developer or builder.
Property is a strong, conservative and consistent investment asset class that makes up a large portion of many household or SMSF investment strategies, the Australian residential property market is three times the size of the ASX and is the source of a considerable volume of wealth for Australian residents. However, as with any investment – diversification is key. Investors looking to see exposure to property can do so via a voluminous and diversified suite of opportunities via listed and unlisted funds in various property asset classes. Those with a particular affinity to residential property can of course gain exposure directly to this market via an investment with the CFMG Land & Opportunity Fund with as little as just $25,000, no requirement for leverage and a fixed annual return of 12% paid on maturity.