In June this year the government passed legislation requiring repayments made for an LRBA from a member’s accumulation account that result in an increase in the value of that member’s retirement-phase account to be counted as a credit for transfer balance account purposes.
The SMSF Academy’s Aaron Dunn explained that if the repayment is sourced from assets that support the same superannuation interest that won’t increase the value of the interest, then the SMSF trustee will not be required to report this as a transfer balance credit.
“This is because the reduction in the LRBA liability is being offset by a corresponding reduction in cash so we don’t need to report that amount as a transfer balance credit. It’s being generated by income from the asset that is under the LRBA,” he said.
However, if it’s being sourced from other assets such as contributions or accumulation interests from inside the fund, he said, then there’s no offset in the value of those retirement phase interests so therefore the overall value is going to increase by the amount of the repayment and it will need to be reported as a credit.
The government, he explained, has introduced this credit to take into account the shift that occurs from accumulation across to pension by virtue of a specific repayment.
“This in itself is going to create a lot of difficulties and complications. Once we start to incorporate tax exemptions, we’ll need to look at expenses and how they’re attributed. There are a lot of unknowns around this at this time,” said Mr Dunn.
“I would expect to see the ATO provide some further clarity in respect to this over the coming year, as we move into the events based reporting requirements.”
SMSF practitioners with clients setting up LRBAs from 1 July 2017, he said, will need to closely monitor the issue in the meantime.