Change to include LRBA in Total Super Balance has balance right

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The Government has got the balance right with its changes to sometimes include Limited Recourse Borrowing Arrangements in the calculation of the Total Superannuation Balance.

The Government recently put to Parliament legislation to include Limited Recourse Borrowing Arrangements (LRBAs) in the Total Super Balance, under certain circumstances. This has for some time been a goal of the Government, over concerns that SMSF members could use LRBAs to manipulate the Total Super Balance and make additional contributions.

SMSF Association CEO John Maroney said the Government has taken a “sensible position” in its final legislation.

“The SMSF Association is pleased the Government has followed our recommendations to narrow and better target the original draft legislation first circulated in early 2017,” he said.

The Government is concerned that SMSF members may withdraw amounts from super and then lend the amount back through an LRBA, with the aim of making higher Non-Concessional Contributions than would otherwise be allowed.

“The original proposal was too broad in its application and would have severely curbed the ability of SMSFs to use LRBAs as an investment instrument to build then superannuation savings. This is because the original proposal would have captured all LRBAs, not just those SMSFs the Government is seeking to prevent from manipulating the TSB rules,” said Maroney.

“We believe the current package now appropriately targets this conduct without inhibiting SMSF trustees’ ability to use LRBAs legitimately.”

Under the proposed changes an individual’s Total Superannuation Balance will include the outstanding balance of an LRBA if it started after 1 July 2018 and where a member has satisfied a condition of release with a nil cashing restriction or the LRBA is with a related party

“For SMSF members entering into an LRBA from 1 July 2018 onwards, they need to realise that if the loan is made by a related party, or where they meet a nil cashing restriction condition of release (such as being over 60 and ceasing gainful employment), they may need to wind their LRBA up if they wish to make further NCCs to their fund as their LRBA may cause them to go over the $1.6 million TSB limit,” said Maroney.

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