Trustees with limited recourse borrowing arrangements (LRBA) may need to rethink a common strategy in order to adapt to total superannuation balance (TSB) calculation changes, an SMSF technical expert has said.
SuperConcepts SMSF technical specialist Anthony Cullen said including certain LRBA balances to calculate the TSB following the introduction of Treasury Laws Amendment (2018 Superannuation Measures No 1) Act 2019 meant some trustees might need to reconsider their usual approach to maximising their contributions.
“Historically, one strategy that was often implemented in relation to LRBAs was to set up a LRBA with the members as the lenders. In subsequent years, subject to contribution caps, the members would utilise the debt-forgiveness provisions to make further contributions,” Cullen said in a blog post on the SuperConcepts website.
“Greater care may be needed with such strategies going forward as the value of the loan may limit or remove the ability for the members to make contributions (including debt forgiveness) once it is included in their TSB.”
In addition, he pointed out the risks involved with manipulating SMSF members’ TSBs in order to keep them below a particular contribution threshold and highlighted the allocation of earnings as one problematic area for those looking for a way to reduce their TSB.
“Trustees who wish to allocate earnings in a different manner should be able to substantiate and justify their approach. Allocating a lower amount of earnings, simply to reduce a member’s TSB, is unlikely to be an acceptable approach and could result in forced amendments to the financial accounts and financial penalties,” he said.
He also noted other methods that might be used to influence a member’s TSB, such as the use of reserves and tax-effect accounting, should not be adopted without a thorough understanding of the implications of each.
“Even if it’s only to confirm your own TSB calculations, obtaining an individual’s TSB details from their myGov account may be important to determine what options are available. Knowing what information is, and can be, used and how it is reported to the ATO is equally, if not more, important,” he added.
SuperConcepts has also warned the new TSB measure might impact on how SMSFs were viewed by lenders in terms of how funds would repay loans.
