New TSB measure could hit SMSFs with LRBA

LRBA TSB measure

A new integrity measure that includes members’ share of LRBA borrowings in their TSB could have detrimental consequences for some, an SMSF legal firm warns.

A newly enacted total super balance (TSB) measure might have an unintended negative impact on SMSFs with limited recourse borrowing arrangements (LRBA), an SMSF legal firm has warned.

SuperCentral said the ‘integrity measure’, which includes a member’s share of any LRBA borrowing in their TSB and was introduced by the federal government to address issues stemming from the interaction between LRBAs and the non-concessional contribution cap, could be unintentionally detrimental for trustees.

While the new TSB measure would not affect the terms on which LRBAs would be offered, the firm stated the measure might impact on how SMSFs were viewed by lenders in terms of how funds would repay loans.

“In an economic sense, the measure may adversely affect [a] lender’s assessment of the SMSF’s ability to service and repay the loan by reason of the flow-on effect from the inclusion of LRBA amounts in the members’ TSB and the TSB’s role in determining the ability to make catch-up concessional contributions and ordinary non-concessional contributions,” it said.

In a blog post on its website, it also pointed out satisfying the safe harbour guidelines ensuring related-party loans in LRBAs were treated as commercial would not stop the new measure being applied to certain LRBAs.

“Satisfying the safe harbour guidelines will not prevent the integrity measure from applying to a particular LRBA (assuming the preconditions for the application are present),” it noted.

“The safe harbour guidelines are directed to the issue whether the LRBA is on arm’s-length terms, [whereas] the integrity measure is addressing potential abuses of the non-concessional contribution cap.”

Last month, Heffron senior SMSF specialist Alex Denham said the inclusion of LRBA amounts in an individual’s TSB would have the ability to affect entitlements for which that member may be eligible.

In September, Smarter SMSF director Aaron Dunn said trustees should determine a member’s individual situation in order to correctly determine the impact an LRBA would have on a member’s TSB.

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