Government backs down on TSB measure for LRBAs
Draft legislation released by the government indicates that the amendment to include the outstanding balance of an LRBA as part of a member’s total superannuation balance will now only apply in limited circumstances.
The government introduced Treasury Laws Amendment (2018 Superannuation Measures No. 1) Bill 2018 into Parliament today which included changes to the total superannuation balance rules for LRBAs, an amendment to help high income earners avoid inadvertent concessional contribution caps and a 12-month amnesty for employers to pay unpaid super entitlements.
While the government is still proceeding with the amendment to include the outstanding balance of an LRBA in the calculation of a member’s total superannuation balance, this will now only apply to members who have satisfied a condition of release with a nil cashing restriction or those with a related party loan.
SuperConcepts general manager of technical services and education Peter Burgess said previously it was slated that the outstanding balance of the loan for any LRBAs put in place from 1 July 2018 would need to be added to the member’s TSB.
“In our view, the draft legislation as originally drafted went far beyond addressing the contrived arrangements referred to in the consultation paper and would have effectively limited the use of LRBAs to SMSF members with relatively low member balances,” said Mr Burgess.
The government’s revised approach, he said, is much more focused and will minimise the likelihood of members who use LRBAs for genuine investment purposes being inadvertently penalised.
“It also means many SMSFs with one or more members who enter into an LRBA from 1 July 2018 will be spared the extra complexity of having to proportion the outstanding LRBA loan balance between members,” he said.
The change in approach by the government follows an extensive lobby effort by the SMSF industry including a number of submissions made by various groups.
The bill also includes the other LRBA measure to amend the NALI rules contained in section 295-550 of the Income Tax Assessment Act 1997 (Cth) to ensure that superannuation entities cannot circumvent these rules by using non-arm’s length expenditure rather than non-arm’s length income.
The government has also included details in the bill on the measure announced in the budget this year to allow employees with multiple employers to apply to the commissioner to opt out of the SG regime in respect of a particular employer to avoid breaching their concessional contributions cap.
“Employers [can] apply to the commissioner for an ‘employer shortfall exemption certificate’, which prevents their employer from having a superannuation guarantee shortfall if they do not make superannuation contributions for a period,” the explanatory memorandum explained.
Within the same bill, the government has also introduced a one-off 12-month amnesty period for employers to pay employees any unpaid superannuation entitlements as part of its superannuation guarantee (SG) integrity package.
Minister for revenue and financial services Kelly O’Dwyer said, in order to use the amnesty, employers will need to pay all that it owes to their employees, including the nominal interest.
“The amnesty will make it easier to secure outstanding employee entitlements, by setting aside the penalties for late payment that are normally paid to the government by employers,” said Ms O’Dwyer.
“Employers that do not take advantage of the one-off amnesty will face higher penalties when they are subsequently caught – in general, a minimum 50 per cent on top of the SG charge they owe.”
In addition, throughout the amnesty period the ATO will still continue its usual enforcement activity against employers for the historical obligations they don’t own up to voluntarily, she said.
Ms O’Dwyer said the ATO estimates that in 2014–15, around $2.85 billion in SG payments went unpaid.
"While this represents a 95 per cent compliance rate, any level of non-compliance is unacceptable, which is why the Turnbull government is giving the ATO the tools it needs to enforce compliance going forward,” she said.
"We are introducing this one-off amnesty to allow employers to wipe the slate clean and pay their workers what they're owed. All Australians workers should be paid the entitlements they are owed."
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.