SMSFs attempting to get their LRBAs on commercial terms by 30 June could be “badly caught out” by the government’s move to introduce a lifetime cap for non-concessional contributions, which is almost certainly going to become law if the Turnbull government remains in power.
In Tuesday’s budget, the government proposed introducing a $500,000 lifetime cap for non-concessional contributions.
As Accurium explained in its post-budget report, from 7.30pm AEST on 3 May 2016, the cap will take into consideration all non-concessional contributions made since 1 July 2007. In addition, the cap will apply to individuals aged up to 75, and will be indexed in $50,000 increments in line with average weekly ordinary time earnings.
In cases where the individual exceeded the cap prior to commencement of the new rules, they will be taken to have used up their lifetime cap but will not be required to take the excess out of the superannuation system.
However, where the excess occurs after commencement, they will be notified by the ATO to withdraw the excess from their superannuation account, or be subject to the penalty arrangements, Accurium explained.
SMSF trustees who are attempting to reshape their loans to get them on commercial terms, which the ATO requires by 30 June, will face significant difficulties if they were planning to use these contributions to adjust their loan to value ratio.
“Let’s say I leant my SMSF $600,000 two years ago. Interest free. And I have to get that my LVR down to 70 per cent. One of the strategies I may have had available was to forgive part of that loan and take it as a non-concessional contribution. If I’ve already put $500,000 into super, that’s not an option,” McPherson Super Consulting director Stuart Forsyth told SMSF Adviser.
For professionals with clients in these situations, it “wouldn’t be prudent” to advise clients to make non-concessional contributions that are likely to push them over the $500,000 cap, even though these budget measures are not yet law, SuperConcepts’ general manager for technical services and education, Peter Burgess, told SMSF Adviser.
Similarly, senior manager for strategic advice at Perpetual, Colin Lewis, said professionals will be “exposing themselves” to risk if they don’t integrate this budget measure into their clients’ planning.
He noted there have been “numerous” superannuation laws that have come into effect from budget night, even though it may have taken several months for the legislation to be officially finalised.
Mr Lewis said best practice would be to alert clients of the proposals, particularly if they are writing statements of advice.
“The industry has been put on notice. These are the rules. Whilst they’re currently proposals and not law, for the particularly critical ones like the caps, it’s best to adhere to them,” Mr Lewis told SMSF Adviser.
“If an adviser tells their client ‘well, it might not become law, so go ahead put in your contributions under the current laws’, and then it later becomes law, that adviser will be the first port of call for their client. So it’s a risk,” he added.
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