LRBA amendments poorly targeted

The SMSF Association has criticised a federal government proposal to make amendments to legislation in relation to limited recourse borrowing arrangements (LRBA).

The association said the government’s proposal to include a member’s share of the outstanding balance of an LRBA entered into on or after 1 July 2018 in their total superannuation balance under amendments to the Income Tax Assessment Act 1997 is inappropriately targeted and has wider reaching implications than what the government concedes.

Responding to the government’s consultation paper on the Superannuation Taxation Integrity Measures, SMSF Association head of policy Jordan George said the association held a “very critical view” of the LRBA amendments that were released in April 2017, adding it would be restating its position to the government through this process to achieve better targeted measures in the near future.

“The federal government had said the policy intent is to stop people using related-party borrowing arrangements to artificially reduce their total super balance so they can keep making non-concessional contributions,” George told selfmanagedsuper.

“It seems to us then that the sensible thing to do is maybe only apply this measure to related-party borrowings because you can’t get the same effect from an LRBA where the loan is at an arm’s-length and named on a commercial basis from a bank or other lending party.”

In releasing proposals for the integrity measures, the government said it would amend subsections 307-230 and add in 307-231 of the Income Tax Assessment Act 1997 to ensure a member’s total superannuation balance will not be affected by whether or not their fund has an LRBA liability.

“This integrity measure addresses the potential for an SMSF member to use an LRBA to facilitate additional non-concessional contributions and increase the fund’s asset base beyond what would otherwise be possible under the contributions cap,” the consultation paper said.

However, George said he believed the problem lay in related-party LRBAs because that was where members could manipulate their superannuation balances.

“So we would recommend to the government that they restrict the proposed amendment to related-party LRBAs, not all LRBAs. That would provide people with clarity going forward and it would also be appropriately targeted in how it works,” he said.

The integrity measures would only affect a small number of SMSFs, particularly given the amendments only applied to new LRBAs entered into on or after 1 July 2018, he noted.

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