He gave an example of John, the sole member of an SMSF with a geared property and whose member balance is $1.7 million, which is backed by investments of $2.1 million and an LRBA of $400,000.

“John intends to make a $360,000 non-concessional contribution to apply to the reduction of the fund’s borrowing,” Busoli said.

“If the loan balance was not included in his total super balance this would be fine but, as this loan satisfies the conditions to be included, his total super balance is $2.1 million for contribution purposes so he can’t make the contribution. Effectively he is prevented from making the contribution by the loan balance which the contribution is intended to reduce.”

Busoli continued that there are a couple of dates of which trustees should be aware in relation to this, noting that any existing borrowings that started prior to 1 July 2018 are excluded from this treatment, but any that started from 1 July 2018 may be included.

“This will include any older loans that have been refinanced unless the new borrowing is secured by the same asset and the refinanced amount is not more than the old loan payout,” he said.

“Borrowings that are not from a related party will only be included once a member has triggered a condition of release, such as retirement, terminal illness, permanent incapacity or being 65 years old. In this case their pro-rata share of the loan will be included.”

Additionally, he noted, related party limited recourse borrowings are included, pro-rata across all members, irrespective of preservation status.

“Ridiculously this could result in a need to refinance a loan with an institutional lender just to enable the members to make non-concessional contributions in the following year, when their total super balances will have been adjusted to reflect their actual member balances,” he said.

“It’s important to note that this would not assist if a member had triggered a condition of release as previously mentioned. For funds with such members, the loan could be reduced by selling assets or by non-concessional contributions from unaffected other members, neither of which might be preferred.”

Furthermore, he said, it is possible that another member could roll their balance into the fund, giving the trustees sufficient liquidity to repay the loan.

“That such matters even warrant consideration underlines the bureaucratic ridiculousness of this rule,” he said.