Advisory and funds management business Gresham Partners has designed a solution that will allow SMSFs to make a significant contribution to their fund before the 1 July super changes come into force.
The Gresham Super Solution allows trustees to maximise their balance by contributing $540,000 to their fund without needing to have the cash available now.
The arrangement results in repayments of principal and interest flowing into the SMSF, which can then be used to fund limited recourse borrowing arrangement (LRBA) debt arrangements, if required, or invested into other assets.
“Every wealth adviser out there is saying that 1 July and the new caps are coming up so they really want to help their clients get more money into super, but we are not aware that anybody’s got a solution for what to do for someone that doesn’t have half a million dollars sitting around,” Gresham executive director Stephen O’Shaughnessy told selfmanagedsuper.
“We are not aware of any competitors or equivalent in the market offering this.
“The only other option is to go to the bank and re-mortgage your house with a secured loan.”
The unsecured loan is repayable quarterly in equal amounts, set up as a direct debit from the individual’s bank account, which they then repay and effectively contribute to their super fund over time, enabling NCCs if they do not have the liquidity before 30 June.
“It’s really for people with SMSF balances in excess of $1.2 million and who expect to continue to be in the higher personal income tax brackets, however, individuals should consider if it’s appropriate for them having regard to their own financial situation and needs, and consult with a financial adviser,” O’Shaughnessy noted.
He said the structure was approved by the regulator.
“The ATO has provided a letter of comfort that confirms our product complies with the provisions of the Superannuation Industry (Supervision) Act,” he noted.
“We stress the difference of this structure because it’s different to borrowing $540,000 and putting it into your super fund as you pay interest to a third party – the interest, net of fees, goes into your fund.
“What this product does is effectively extend your cap to $2.1 million and allows you to pay the amount of money over time over the length of the loan.
“It’s like the individual still gets to make NCCs, but it’s just in the form of principal and net interest payments.”
Furthermore, the 2017 federal budget confirmed the outstanding balance of an LRBA will now be included in a member’s annual total super balance, and the repayment of the principal and interest of an LRBA from a member’s accumulation account will be a credit in the member’s transfer balance account.
“That means that a lot more people will have over $1.6 million than we originally thought,” O’Shaughnessy said.
“There have been a lot of inbound inquiries as a result of that change.”