Treasury has released draft legislation indicating how SMSF assets being held under a limited recourse borrowing arrangement (LRBA) will be included against a member’s total superannuation balance.
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.
Repayments sourced from the income generated by other assets held within the fund supporting the same income stream will not be counted as a credit as they will not be considered to have increased the value of the asset in question.
The proposed legislation includes a slight change to its original form whereby the new treatment of LRBAs will only be applied to any of these types of arrangements entered into after the amended legislation receives royal assent.
However, it still means a proportional share of a member’s LRBA still outstanding at this time will give rise to a transfer balance credit.
The SMSF Association has expressed its continued concerns about the new direction the government has taken in regard to LRBAs, despite the slight change to the original proposal.
“Members with a total super balance of $1.6 million or more are not eligible to make non-concessional contributions to super. This will make it difficult for future LRBAs to be paid off,” the industry body said.
“We are 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.”