LRBA treatment dependent on member’s circumstance

LRBA total super balance

The extent to which the outstanding balance of a LRBA will affect a member’s total super balance is determined by the individual member’s circumstances.

Trustees must determine a member’s individual situation in order to correctly determine the impact a limited recourse borrowing arrangement (LRBA) will have on a member’s total super balance, an SMSF service provider has said

The interaction between an LRBA and a member’s total super balance first came to light when the Treasury Laws Amendment (2018 Superannuation Measures No. 1) Bill 2019 was re-introduced into parliament on 24 July this year.

The amendment bill specifies a portion of the outstanding balance of an LRBA will increase a member’s total super balance where the member has satisfied a condition of release with a nil cashing restriction, or the member has interests supported by an asset subject to an LRBA involving a related party.

“It is important as you work through any of these transactions to establish a connection between the asset and the member’s interest as to whether or not [there is a total super balance impact]. So if it is part of a segregated strategy it’s only going to impact the interest of that particular member, not all members,” Smarter SMSF director Aaron Dunn explained during his latest webinar.

“And if only one member has satisfied a condition of release the LRBA will obviously impact that member and not the one or other members that may not as yet satisfied a condition of release in the fund,” he added.

Dunn noted the allocation of the outstanding LRBA balance will be determined by the net share of the asset each member is deemed to have.

To illustrate this point he used an example where a two member SMSF, where each member has satisfied a condition of release, acquired an asset worth $3.5 million financed by $1.5 million from the fund and a $2 million LRBA. Of the $1.5 million member one contributed $600,000, or 40 per cent, and member two contributed $900,000, or 60 per cent.

In this situation Dunn said member one would have $800,000, or 40 per cent, of the LRBA added to their total super balance while member two would have their total super balance increased by $1.2 million, or 60 per cent.

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