No TBAR obligations from LRBAs

TBAR LRBA transactions

Transactions arising from limited recourse borrowing arrangements (LRBA) are unlikely to trigger a transfer balance account reporting (TBAR) event.

A technical specialist has advised it is highly unlikely for any transactions involving a limited recourse borrowing arrangement (LRBA) to have the ability to trigger the need to lodge a transfer balance account report (TBAR).

“In order to have a situation where [an LRBA transaction] is a TBA (transfer balance account) event, where it would be a credit towards the member’s transfer balance account, you’ve got to have a fund which has an LRBA, so an asset under a borrowing arrangement, it would have to be segregated,” Accurium head of education Mark Ellem said.

“So that rules out all of the funds that have disregarded small fund assets and all the funds that haven’t elected to use segregation,” he added.

Further Ellem noted the asset would have to be segregated to the member’s pension account.

“From a tax view point why would you do that, because if you segregated to the pension side you’re not going to get a tax deduction for the interest on the loan. [Instead] you would segregate it to the accumulation side [of the fund],” he explained.

“What [the ATO is] concerned about is [if] you’ve got an LRBA segregated to the pension side of the fund, but you’re taking the money from the accumulation side to repay the loan and therefore the net asset is going up by the amount of the loan repayment.

“The other issue there is you’re taking money from the accumulation side, which actually means you wouldn’t be complying with [Superannuation Industry (Supervision) Regulation] reg 5.02 or 5.03 [as to] making sure that costs and earnings are allocated on a fair and reasonable basis because effectively the accumulation member would be paying all of the loan repayment.”

He pointed out he can see why practitioners and trustees would be concerned about this situation in theory but admitted he has yet to see in issue like this in practice and is unlikely to in the future.

“Look be aware of it but I’m yet to see one,” Ellem advised.

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