SMSFA still worried about LRBA treatment

The SMSF Association remains concerned about draft legislation governing the treatment of assets held under limited recourse borrowing arrangements (LRBA) in relation to an individual’s total super balance, despite the inclusion of small amendments called for by the industry body.

The Exposure Draft for Treasury Laws Amendment (2017 Measures No 2) Bill 2017: limited recourse borrowing arrangements proposes a repayment made from an SMSF accumulation account for an asset held under an LRBA being used to support an income stream will result in a transfer balance credit to arise.

Further, the repayment must increase the value of the asset supporting an income stream for a resulting transfer balance credit.

The slight change that has been made to the original proposed amendment is this new LRBA treatment will only apply to LRBAs entered into after the amended legislation receives royal assent.

In response to the release of the exposure draft, the SMSF Association said: “If the government’s amendments are passed, the proportional share of a member’s outstanding balance in an LRBA of the SMSF will count towards their total superannuation balance.

“Members with a total superannuation balance of $1.6 million or more are not eligible to make non-concessional contributions to superannuation. This will make it difficult for future LRBAs to be paid off.

“The SMSF Association is concerned by these amendments and their effect on trustees, especially the total superannuation balance amendments on those planning to use an LRBA to acquire business real property as part of their retirement strategy in the future.”

The draft legislation is currently undergoing a public consultation process and Treasury has called for submissions on the subject before 3 May.

The SMSF Association has asked its members to forward their views on the draft legislation before the close of business on 2 May.

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