The federal government has backed down on its proposal to count outstanding limited recourse borrowing arrangement (LRBA) loan balances against an SMSF member’s total super balance by making a key amendment to the measure.
The Treasury Laws Amendment (2018 Superannuation Measures No 1) Bill, introduced into Parliament in May, revised the rule where it will now only apply if the member has satisfied a full condition of release or if it is a related-party loan.
The law will apply to LRBAs put in place from 1 July 2018.
SuperConcepts technical services and education general manager Peter Burgess said the outcome was favourable for the SMSF industry and advisers.
“It’s a common-sense decision the government’s made to restrict it to these types of arrangements – the original draft legislation, in our view, went far beyond addressing the contrived arrangements referred to in the consultation paper and it would have effectively limited the use of LRBAs to SMSFs with relatively low member balances,” Burgess told smstrusteenews.
“Many in the industry had called for a more focused approach as it was too broad in its application, and that’s what we’ve now got.
“The benefit of this is that the original proposal would have required SMSFs to proportion balances between members of the outstanding loan to calculate their total super balance, which was very complex.
“So this will only apply in situations where the member has taken out an LRBA and they have satisfied a full condition of release or the loan is a related-party loan, which means less complexity for the sector.”
The SMSF Association also welcomed the sensible position taken by the government’s final legislation introducing integrity measures for LRBAs within the total super balance regime.
Association chief executive John Maroney said the new measure, designed to stop people artificially lowering their total super balance via an LRBA, achieves the right balance between any manipulations of the $1.6 million total super balance rules and allowing SMSF members to legitimately use LRBAs to build their retirement savings.
“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,” Maroney noted.
“The original proposal would have captured all LRBAs, not just those SMSFs the government is seeking to prevent from manipulating the rules.
“For SMSF members entering into an LRBA from 1 July 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 non-concessional contributions to their fund, as the LRBA may cause them to go over their $1.6 million total super balance limit.”
He said advisers and trustees need to be cognisant of the effects of the legislation and respond appropriately.