The federal government has mooted two significant amendments to the new superannuation legislation set to take effect from 1 July this year pertaining to the treatment of assets acquired under a limited recourse borrowing arrangement (LRBA) in regard to the total superannuation balance and the transfer balance cap.
The first of the proposed changes involves the inclusion of the outstanding balance of an LRBA in a member’s annual total superannuation balance.
This amendment has been proposed due to concerns over a trustee’s ability to pay a lump sum to a member who could then lend it back to the SMSF, allowing the fund to acquire an asset via an LRBA.
The government feels it would effectively allow members to continue to make contributions by maintaining their net asset balance under the total superannuation balance threshold.
The second proposed tweak to the legislation is to treat the repayment of the principal and interest of an LRBA from a member’s accumulation account as a transfer balance credit in the member’s account.
Driving this amendment is the government’s disquiet that asset growth experienced in the accumulation phase could be transferred to a member’s retirement phase, while not captured by the transfer balance cap, by paying off what is considered a retirement-phase liability with accumulation-phase income.
The government also flagged several other amendments to the retirement savings laws mainly to do with transition-to-retirement income streams (TRIS). The first of these is a proposal for SMSF members to receive an earnings tax exemption when a TRIS holder has satisfied a nil condition of release.
Further the government signalled its intention to further clarify the eligibility of all TRIS products to access capital gains tax relief and its aim to ensure a transfer balance cap debit arises before an income stream is adjudicated to be non-compliant.
A final amendment will be to the six-month prescribed death benefit rules regarding death benefits and non-retirement spouses to apply from the date on which the relevant bill is amended and not 1 July 2017.
This change will mean spouses who commute death benefits to adhere to the transfer balance cap before 1 July 2017 can cash the amount in excess of the cap as a lump sum without being taxed at marginal rates.