SuperConcepts general manager of technical services and education Peter Burgess says the government has proposed a change to the calculation of an individual’s total superannuation balance where there is an LRBA in place.
“The proposed amendment will count the outstanding balance of an LRBA each year towards the member’s annual total super balance,” Mr Burgess told SMSF Adviser.
“If a member has a super balance of $1 million at 30 June and they have an LRBA in place with an outstanding balance of say, $600,000 at 30 June, their non-concessional contributions cap will be zero for the next income year.”
Mr Burgess said it appears this proposed change is aimed at overcoming situations where an SMSF member withdraws a lump sum amount from their fund and lends the money to the SMSF to purchase an asset through an LRBA.
This strategy could be used by SMSF trustees to circumvent the contribution caps as it would keep their net balance below the total super balance threshold.
“What’s not clear at this stage is how the outstanding LRBA balance would be allocated to a member’s total super balance in situations where there is more than one member in the fund,” Mr Burgess said.
“It’s also not clear, at least to me, what the real benefit of this type of strategy is, given the SMSF would still be required to make arm’s length loan repayments.”
The government has also proposed making a change to the transfer balance credit provisions so that where a member has a transfer balance account, the amount of the repayment of the principal and interest of an LRBA will appear as a credit in the member’s transfer balance account.
“Again it’s unclear at this stage how this would work in situations where there are multiple members in the SMSF,” Mr Burgess said.
These latest proposed changes to the superannuation tax reform package come after Minister for Revenue and Financial Services Kelly O’Dwyer told PwC that the government would not implement further tax changes in relation to superannuation in the May federal budget.
In a letter seen by SMSF Adviser, Ms O’Dwyer said the government intends to legislate these changes in the winter sittings of Parliament to ensure they are enacted by 1 July 2017.
“If time allows, exposure draft legislation will be released for consultation,” she said in the letter.
Ms O’Dwyer said following “any significant reform package, there are usually a number of issues that arise as the reforms are implemented”.
“The superannuation tax reform package has been no different.
“Consequently, the government intends to make a number of minor and technical changes to the legislation to ensure that the legislation operates as was intended.”
She also confirmed that the ATO would be providing further information to stakeholders, through its law companion guidelines, as part of its ongoing consultation process.
And why shouldn’t they make more changes. It has been at least a week since the government under the direction of its bureaucrats, announced the last changes. I am so relieved – I thought the government was concentrating on real problems such as our budget deficits, addressing our massive electricity problems, our aging population and our problems with large multi-nationals not paying any tax here at all. But I am obviously a stupid man—-why not keep attacking the SMSF sector —– its fun for the bureaucrats and is fair game for treasury!
Exactly Jim, Yep the morons in Canberra continue to do their best to destroy people’s confidence in the super system with continual change yet do bigger all about the big issues.
ODwyer and her cronies are a disgrace.
So instead of money being in the SMSF with earnings taxed at 15 per cent, the strategy has a loan for this amount so members are getting interest at 5.65 per cent taxed at their marginal tax rates. Is the strategy saving tax, or just sounds impressive but achieves nothing. Noting Wildcat’s comments about it hurting the genuine trustees/members.
I get the “logic” from the gov’ts perspective about those tricky trustees but how will the SMSF then pay the loan off if they can’t contribute this to the fund except by $25k per year before tax?
This will hurt more genuine trustees than catch out the trick ones. Leave it alone please.