SMSF limited recourse lending

Our new Bite-Size Strategies series will provide you with some easy to apply ideas you can share with your clients. Let’s have a look at limited recourse lending used by SMSF’s – and the benefits of doing so.

When looking at the historical performance of the S&P/ASX 200 index, it is important to remember that this does not include the benefits of dividends. There is also no consideration for the effect of franking credits – which can be beneficial within a superannuation fund.

To provide SMSF investors a tool to help illustrate, the S&P/ASX 200 Franking Credit Adjusted Annual Total Return Index (Superannuation) takes into account not only the most widely followed Australian equity benchmark but also the tax effect of franking credits based on the tax rate applicable to Australian super funds.

The S&P/ASX200 index pays a relatively large dividend yield when compared to the US market, 4.2% vs 1.8%. This has a significant compounding effect over time. When taking this into consideration we can see that the S&P/ASX200 index surpassed its 2007 high back in 2013 and today continues to make new highs.

The index accrues a pool of dividends and reinvests them into the index at the end of the financial year. Reinvesting occurs at market close on the first trading day after June 30. The 15% tax rate is applied to the gross dividend amount to determine the net tax effect applied in the return calculation.

Implementing a gearing strategy within a SMSF is definitely possible - there are a number of products available that offer superannuation-friendly limited recourse loans to take advantage of both the long term growth prospects and the advantages of franking credits within super.

At Leveraged we can help you assist your client’s gearing strategy within their SMSF, or those who prefer limited recourse products. Share Builders offers a simple and convenient way to borrow and invest in a range of ASX listed shares and exchange traded funds.

More information on Share Builders can be found here.

To discuss Share Builders or how your clients can make the most of gearing, contact your Relationship Manager or call Leveraged on 1300 307 807.

^{Adviser use only. Issued by Leveraged Equities Limited (“Leveraged” ABN 26 051 629 282, AFSL 360118) acting in its capacity as Lead Distributor for Share Builders. Leveraged is a subsidiary of Bendigo and Adelaide Bank Limited (ABN 11 068 049 178 AFSL 237879). Share Builders are issued by UBS AG, Australia Branch (ABN: 47 088 129 613, AFSL 231087) ("UBS" or “Issuer”) under a Master Product Disclosure Statement and Term Sheet which have been prepared by the Issuer. For Adviser use only, not to be distributed to any other person.}