Sometime in June 2017, the Government expressed its intention to revise the Total Superannuation Balance provisions when an SMSF had a limited recourse borrowing arrangement (LRBA). The intention of the Government was to apportion a share of the fund’s outstanding loan balance to every affected member and make the loan balance count towards their Total Superannuation Balance (TSB). The scope was narrowed in the final legislation, but it still affects a large number of SMSFs.
The LRBA becomes a liability and an asset, inflating the TSB by the loan amount of the LRBA. Once a member’s TSB exceeds $1.6 million it affects their ability to make the following:
- Non-concessional contributions
- Government Co-contribution
- Spouse contribution tax off-set
- SMSFs segregated method for calculating ECPI
If their TSB is over $1.4 million, it affects the two and three year bring forward rules. Additionally, the catch-up concessional contributions are only allowed if a TSB is less than $500,000. Thus, the LRBA add back can have a significant effect on the ability to make contributions.
The Treasury Laws Amendment (2018 Superannuation Measures No. 1) Bill 2018 received royal assent on 2 October 2019. Schedule 4 of this Bill amends the total superannuation balance test so that, in certain circumstances, it takes into account the outstanding balance of a limited recourse borrowing arrangement that is entered into by the trustee of an SMSF.
The increase only applies to LRBAs commenced from 1 July 2018 where there is a related party loan or members who have satisfied a condition of release with a nil cashing restriction. Members who are under retirement age and use a third-party lender are not likely to be affected by the measures.
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