The Government is again consulting on proposed legislative changes to include Limited Recourse Borrowing Arrangements in Total Superannuation Balance, along with changes to the Non-Arm’s Length Income rules.
The Government has for some time wanted to include Limited Recourse Borrowing Arrangements (LRBAs) in the calculation of Total Super Balance. Draft legislation was released in the first half of 2017 for consultation, but the changes were dropped from the Bill introduced to Parliament. The new consultation paper says this was to “allow further public consultation”. Less than a week was given to make submissions for this initial consultation.
Many submissions from tax and superannuation industry bodies to the first round of consultation took particular issue with including LRBAs in Total Super Balance. This included concerns that it would restrict the ability of members who were planning on repaying such loans using future contributions. It is unclear yet if these concerns have been alleviated by the new draft.
“These measures are intended to ensure that LRBAs or related party transactions cannot be used to circumvent contribution caps,” says a statement by Minister for Revenue and Financial Services Kelly O’Dwyer on the release of the new consultation paper and draft legislation.
“They are not intended to prevent the use of LRBAs.”
The consultation paper says: “the liability under an LRBA currently reduces a member’s TSB by reducing the amount available for commutation or withdrawal. The new measure will cancel out this effect, so that a member’s TSB will not be affected by whether their fund has an LRBA liability or not. This integrity measure addresses the potential for an SMSF member to use an LRBA to facilitate additional non-concessional contributions and increase the fund’s asset base beyond what would otherwise be possible under the contribution caps.”
“The new integrity measure also ensures that SMSF members that have attained a condition of release cannot circumvent the caps by withdrawing lump sums and re-contributing the funds as a loan.”
Another piece of draft legislation includes changes to the Non-Arm’s Length Income (NALI) rules. Currently NALI applies so that concessional tax treatment doesn’t apply where income is higher than on an arm’s length basis. The changes would extend this to apply where expenses are lower than an arm’s length transaction. The consultation paper gives an example of a loan from a related party where interest is not charged.
The draft legislation has both the LRBA and NALI changes applying from “the first 1 January, 1 April, 1 July or 1 October to occur after the day this Act receives the Royal Assent”.
Submissions in response can be made through the Treasury website. Submissions will close on Friday 9 February 2018.