Amended LRBA integrity measures ‘get balance right’

SMSF Association Media Release
24 May 2018

The SMSF Association welcomes the sensible position taken in the Federal Government’s final legislation introducing integrity measures for limited recourse borrowing arrangements (LRBAs) that include the outstanding portion of an LRBA in a trustee’s total superannuation balance, says Association CEO John Maroney.

This new measure, designed to stop people artificially lowering their Total Superannuation Balance (TSB) via an LRBA, achieves the “right balance” between stopping people manipulating the $1.6 million TSB rules and allowing SMSF members to legitimately use LRBAs to build their retirement savings.

“The SMSF Association is pleased the Government has followed our recommendations to narrow and better target the original draft legislation first circulated in early 2017.

“The original proposal was too broad in its application and would have severely curbed the ability of SMSFs to use LRBAs as an investment instrument to build then superannuation savings. This is because the original proposal would have captured all LRBAs, not just those SMSFs the Government is seeking to prevent from manipulating the TSB rules.”

The policy intent of the changes is to stop people manipulating the $1.6 million TSB restriction on non-concessional contributions (NCCs) by withdrawing funds from their SMSF and them lending back to the fund via an LRBA, potentially allowing further NCCs to be made.

“We believe the current package now appropriately targets this conduct without inhibiting SMSF trustees’ ability to use LRBAs legitimately.

“An individual’s total superannuation balance will only include the outstanding loan amount of an LRBA that starts after 1 July 2018 where a member has either:

  • Satisfied a nil cashing restriction condition of release; or
  • It is a related-party LRBA.

“For SMSF members entering into an LRBA from 1 July 2018 onwards, they need to realise that if the loan is made by a related party, or where they meet a nil cashing restriction condition of release (such as being over 60 and ceasing gainful employment), they may need to wind their LRBA up if they wish to make further NCCs to their fund as their LRBA may cause them to go over the $1.6 million TSB limit.”

Maroney concludes that financial advisers and SMSF trustees should be cognisant of the effects of the legislation and respond appropriately.