Intermediary LRBAs create TSB uncertainty

Intermediary LRBA TSB

The place of outstanding balances of intermediary LRBAs in regards to an SMSF’s total super balance remains unclear as the sector awaits further ATO input.

SMSFs with an intermediary limited recourse borrowing arrangement (LRBA) should take care in how they calculate their total super balance (TSB) as the outstanding balance through the arrangement should not be included for TSB purposes.

SMSF Association technical manager Mary Simmons said clarity on the treatment of outstanding balances in an intermediary LRBA was being sought from the ATO but at present SMSF trustees needed to be clear as to what should be included when calculating a TSB.

“If you have a fund with an outstanding LRBA balance, and it relates to a related party LRBA, or relates to a member who has met a condition of release with nil cashing restrictions, you need to add back the outstanding balance to the TSB,” Simmons said during a presentation at the Association’s recent Virtual Tech Summit.

“That rule applies to all LRBAs from the 1 July 2018 or any that are refinanced and don’t meet some of these requirements.

“When we dealing with intermediary LRBAs, we know the ATO has come up with a determination to ensure that where the holding trust is the one that has the principle borrowing, not the SMSF, that arrangement will also be excluded from the in-house asset rules.

Simmons said while that opens up the pool of lenders for SMSFs and could create more favourable borrowing terms, it left intermediary LRBAs outside the TSB add back regime.

“What’s more interesting and I want to alert you to is that with the TSB add back provisions when you trace through the law it actually only applies to a borrowing that is undertaken by the trustee of the fund.

“So, at the moment it doesn’t appear to cover a situation where the holding trust is the one with the borrowing, so please tread carefully with these as we are currently seeking a ATO clarity on that point.

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