LRBA TSB manipulation overstated: SISFA

The Self-managed Independent Superannuation Funds Association (SISFA) has said the misuse of limited recourse borrowing arrangements (LRBA) for total super balance (TSB) purposes is a non-issue, while changing the non-arm’s-length income (NALI) provisions could result in repercussions.

In its submission to the Superannuation Taxation Integrity Measures consultation paper, issued on 11 January, SISFA said Treasury’s stance and suggested outcomes in relation to the two measures were contrary to policy objectives.

“The most controversial issue is adding back in to a person’s TSB the value of any outstanding LRBA, which is just crazy. On any accounting level to add a liability back on for other purposes makes no sense whatsoever,” SISFA managing director Michael Lorimer told selfmanagedsuper.

“And in terms of the kind of mischief that they’re purporting to address, we as an association and we as practitioners are not aware of this so-called mischief that’s going on in the marketplace.

“In our submission, we’ve included an example of how someone could effectively get around it anyway, just in terms of the order they make a contribution and then take out a loan. So that’s been important to highlight.”

The second measure under consultation was around ensuring non-arm’s-length expenditure is taken into account when determining whether NALI taxation rules apply to a transaction.

“Extending the NALI provision to include situations where a fund might be seen to be not charging or undercharging for related-party services, given it’s such a black and white provision, potentially has some horrific outcomes in practice,” Lorimer warned.

“A small fund, for example, that might have a residential investment property where the trustees are effectively managing it and they replace a couple of lightbulbs and forget to get the fund to reimburse them, and technically they haven’t charged for something they should have on its face value, which would result in all of the rent that the fund is receiving to be taxed at the top marginal rate.

“It’s a ridiculous scenario so we’d like to think [Treasury] will really think about it and perhaps we’ll see more consultation opportunity or more feedback.”

He said he hoped Treasury would carefully consider the concerns highlighted in SISFA’s submission.

“Unfortunately that hasn’t necessarily been our experience in the past, but I think this time we’ve highlighted a number of potential anomalies, which, if proceeded with, will be quite concerning,” he said.

SuperConcepts technical services and education general manager Peter Burgess said a more focused approach was required to what was proposed in the consultation paper.

“We are relaxed about the NALI measure but we have a lot of concerns about the LRBA proposal,” Burgess told selfmanagedsuper.

“As it’s currently drafted, it goes well beyond just currently addressing any contrived arrangements, which were referred to in the paper.

“Everyone in the industry seems to be saying the same thing in terms of the measures needing to be more focused, so off the back of what we’ve seen with the reversionary transition-to-retirement income stream consultation, we are hopeful we will get a positive outcome here.”

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