Draft law unclear on LRBA additional finance

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Tax inspector investigating financial documents through magnifying glass, forensic accounting or financial forensics, inspecting offshore company financial papers, documents and reports.

The draft legislation outlining how limited recourse borrowing arrangements (LRBA) will impact on total superannuation balances does not provide clarity on what will happen if an SMSF member requires additional finance under the refinancing of current LRBAs.

Townsends Business and Corporate Lawyers superannuation special counsel Michael Hallinan told a breakfast seminar last week he was uncertain of the consequences if an SMSF member needed additional finance in circumstances where they required funds for permitted repairs and maintenance.

While Hallinan noted the draft legislation contained in the Superannuation Taxation Integrity Measures said pure refinancing would not be affected under the measure, he was unsure about additional finance.

“Maybe you should best avoid that issue by either not borrowing beforehand or, if you can, have that additional finance as a discreet arrangement,” he said.

“At least you can say yes, we’ve now got a non-grandfathered LRBA arrangement, but it’s only of a minor amount compared to possibly adversely affecting the original drawdown amount.”

Those who chose this route would treat it as a discreet arrangement with proper documentation, he said.

He also warned it was the last call for grandfathered LRBAs: in terms of refinancing, SMSF members who commence an LRBA before 1 July 2018 can refinance it two years later without losing its grandfathered status.

“Do it before 30 June 2018. This is maybe a last call opportunity, so if your clients are seriously thinking about it, maybe this is an opportunity for them to implement their investment strategies and undertake an LRBA arrangement,” he said.

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