Proposed LRBA measure ‘heavy-handed’
A major SMSF services provider says the government’s proposal to include the outstanding balance of an LRBA in a member’s total super balance for new arrangements is too broad, and has proposed alternative options.
Last week, Treasury announced it would be consulting on two proposed measures regarding limited recourse borrowing arrangements, including a measure which would see the outstanding balance of an LRBA count towards a member’s total super balance for new LRBA entered into on or after the commencement of the amendments.
SuperConcepts general manager of technical services and education Peter Burgess said the consultation paper refers to an arrangement where an SMSF member, who has satisfied a condition of release, withdraws an amount from their fund and then lends the amount back to their fund on commercial terms under an LRBA.
The paper goes on to explain that as only the net amount of the underlying asset, or the value of the asset less the outstanding loan, is included in the calculation of the member’s total super balance, the member’s total super balance which exceeded $1.6 million before the withdrawal could be reduced below $1.6 million allowing further non-concessional contributions to be made, said Mr Burgess.
“To overcome this, it is proposed that the legislation be amended so that for new LRBAs entered into on or after the amendments commence, the outstanding balance of the LRBA will need to be included in the calculation of the member’s total super balance,” he said.
Therefore, these contrived arrangements, he said, will only have relevance in situations where the member has satisfied a full condition of release.
“Rather than applying this measure to all SMSF members with an LRBA in place, perhaps an alternative would be to only apply this measure to SMSF members who have satisfied a full condition of release or only where there is a related party loan in place,” said Mr Burgess.
“The proposed changes to the calculation of an SMSF member’s total super balance where there is an LRBA in place are in our view heavy-handed. We believe a more focused approach is required to discourage the contrived arrangements referred to in the consultation paper rather than the proposed approach which is likely to penalise many legitimate LRBAs that are being used for genuine investment purposes.”
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.