Government ‘jumping at shadows’ with LRBA reforms
The government is chasing after strategies that may not even exist with its proposed amendments to limited recourse borrowing arrangements and causing unnecessary technical challenges, according to one technical expert.
One of the proposals made by Minister for Revenue and Financial Services Kelly O’Dwyer was to count the outstanding balance of an LRBA each year towards the member’s annual total super balance.
The government said the 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.
Treasury was concerned 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.
Miller Super Solutions founder Tim Miller told SMSF Adviser he has never heard of any SMSF practitioner or trustee deliberately paying benefits to lend the money back to the super fund through acquired assets under an LRBA.
While SMSF practitioners may discuss strategies involving LRBAs as an alternative to contributions in the context of preserved benefits versus access to liquidity, there are no common SMSF strategies involving the use of LRBAs to avoid the transfer balance cap, Mr Miller said.
“I just haven’t seen it. It doesn’t mean it doesn’t happen, but we’d be talking about such a minority, that it just seems a pointless exercise to chase after those sorts of scenarios,” he said.
“I think the government is jumping at shadows in that regard because they’re hearing about strategies that I don’t necessarily think exit.”
Mr Miller said this has already caused uncertainty around the value of the LRBA which will be distributed across multiple members in a fund from a total balance point of view.
“I also found it interesting that the government is talking about changes to the death benefit rules to ensure that people aren’t caught out by having their death benefits taxed at marginal tax rates,” he said.
“I found that intriguing because under no circumstances other than illegally accessing your superannuation, under no circumstances are benefits from super taxed at marginal tax.”
Mr Miller said death benefits are tax exempt in the scenario that it’s paid out to a tax dependant and if it’s not paid to a tax dependant, it is taxed at 15 per cent plus Medicare.
“If what they were trying to avoid under the six-month rule was any payment outside of the six-month period being treated as a member benefit, then that was still capped at 20 per cent tax, not marginal tax,” he said.
“There just seems to be so many anomalies with what’s going on at the moment, and I think a lot of those issues aren’t necessarily related to the real issues which are how are these reforms going to be implemented by 1 July."
Miranda Brownlee is the deputy editor of SMSF Adviser, which is the leading source of news, strategy and educational content for professionals working in the SMSF sector.
Since joining the team in 2014, Miranda has been responsible for breaking some of the biggest superannuation stories in Australia, and has reported extensively on technical strategy and legislative updates. Miranda has also directed SMSF Adviser's print publication for several years.
Miranda also has broad business and financial services reporting experience, having written for titles including Investor Daily, ifa and Accountants Daily.