LRBA TSB excess amount irrelevant

SMSF establishment balances have increased says the ATO

More SMSFs are being established around the $500,000 mark, meeting the Productivity Commission’s suggested benchmark made earlier this year.

SMSF members whose total superannuation balance exceeds $1.6 million in 2018/19 due to limited recourse borrowing arrangements (LRBA) will not be affected by how much the total super balance exceeds the cap, according to a law firm.

Townsends Business and Corporate Lawyers superannuation special counsel Michael Hallinan said the amount of debt under an LRBA will not be affected by the Superannuation Taxation Integrity Measures.

“If you have an LRBA arrangement and it puts you over the total super balance cap, it doesn’t matter whether you exceed it by $1, $100,000 or $1 million,” Hallinan told a recent SuperCentral breakfast event in Sydney.

“So if you’re going to enter into an LRBA arrangement this financial year, and you know it’ll put you in the next financial year in a position where your non-concessional contributions cap space is zero, there’s nothing stopping you from undertaking two or three LRBA arrangements in this financial year.

“If you’re going to exceed the total super balance by $1, you might as well exceed it by $3 million. It’s the same effect on contributions.”

He also said the SMSF member can still make capital gains tax non-concessional contributions or structured settlement contributions, as well as downsizer contributions if eligible, as downsizer contributions are not subject to the total super balance rule.

While the amount of debt under an LRBA is immaterial in the legal sense, it may have some bearing on lenders’ willingness to lend, the amount they are prepared to lend, the need for arm’s-length terms and the assessment of the serviceability of the borrower, he said.

This is significantly influenced by how much a member can contribute into the super fund, which means the level of debt under an LRBA will have an indirect impact, he said.

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