Last week, the government passed an amendment to include repayments of borrowings under a limited recourse borrowing arrangement in the transfer balance cap as part of the Treasury Laws Amendment (2017 Measures No. 2) Bill 2017.
Perpetual head of strategic advice Colin Lewis noted that this “was only one limb of the two-pronged attack on LRBAs”, and the other measure to include the outstanding balance of an LRBA loan towards a member’s total superannuation balance was not included in this bill.
“The other [amendment] is still subject to industry consultation and we still haven’t got any certainty on that,” Mr Lewis said.
If this amendment to count the debt towards the total balance does proceed, it may preclude some SMSF trustees from making further non-concessional contributions, he explained.
“And if you can’t do that, how do you pay off the debt?” he asked.
SMSF Association head of technical Peter Hogan said without the ability to make non-concessional contributions, it could be almost impossible to finance an arrangement.
“The banks are reluctant to lend in this space now anyway. It’s really difficult to actually find a bank that will lend money for a residential loan because of those changes in the funding requirements,” Mr Hogan said.
“So if you take away the ability to make non-concessional contributions, you almost close this market down.”
Mr Hogan said Treasury has stated that it is not their intention to close down gearing inside super by default by making it impossible.
“That is why the legislation that was introduced had nothing about total super balance in it, it’s not because there won’t be unfortunately. If you were thinking there are no amendments to total super balance, they must have decided to ditch it altogether; then I’m sorry to say that’s not the case. It suggests they’re still thinking about it,” he said.
“They will and do plan to reintroduce additional legislation in relation to total super balance. We’re not entirely sure when. All we know at this stage is that they’re still thinking about it as to what approach they might take.”
I dont see how this is such a major issue. If you have responsible levels of borrowing, the debt and other fund expenses can be adequately serviced from rent and SGC. With most lenders placing limits on LVRs and imposing liquidity requirements on residual funds post-purchase, there are enough checks and balances on the system so that additional non-con contributions arent required.
As for the other aspect of only looking at the gross property value, and not the net, is this an methodology that will be applied across all areas of government, tax and payment transfers?? At present you are allowed to use the net value of assets when applying for other government benefits, will the debt be excluded in these instances? If not, why not.