The inclusion of limited recourse borrowing arrangement (LRBA) amounts in an individual’s total superannuation balance (TSB), as dictated by new legislative measures, has the ability to affect entitlements for which that member may be eligible, an SMSF expert has said.
Heffron senior SMSF specialist Alex Denham said: “From 1 July 2018, a person’s TSB will, in certain circumstances, include the outstanding LRBA amount attributable to each member’s interest where the SMSF has an LRBA that was entered into from this date.”
Members affected by the new LRBA measures will be those where the lender under the LRBA is an associate of the SMSF, or if the member of the fund has met a full condition of release, Denham noted in a blog post on the Heffron website.
“We’ve known for a while that this measure was coming – it was contained in a Bill introduced last year but lapsed when the federal election was called. This is one of the first significant superannuation measures to be legislated since the Coalition were re-elected,” she added.
She pointed out trustees should be aware of how the impact on TSB could affect member eligibility for several entitlements, as this would have to be taken into account when implementing superannuation strategies.
Non-concessional contributions (NCC), catch up concessional contributions (CC), the segregated asset method, work test exempt contributions, the spouse tax offset, and Government co-contributions could all be affected, she explained.
Highlighting the impact on a member’s ability to make NCCs, as well as how catch up CCs would be affected, she said: “A member’s TSB at 30 June has a direct impact on their NCC cap the following year. If TSB is $1.6 million or more at 30 June, their NCC cap is nil the following year.”
“Since 1 July 2018, unused concessional contributions can be carried forward for up to five years. The ability to use those carried forward contributions is dependent on TSB – where TSB was $500,000 or more on 30 June, carry forward CCs cannot be utilised in the following year.”
Last month, an SMSF service provider said trustees needed to determine a member’s individual situation in order to correctly determine the impact an LRBA would have on a member’s TSB.