LRBA, SMSF, Superannuation, Tax

LRBA TSB treatment a soft cap issue

$3 million soft cap LRBA apportioning

The apportioning of LRBA liabilities remaining to be paid to the total super balance of SMSF members is another $3 million soft cap issue.

A technical specialist has highlighted the treatment of existing liabilities stemming from a limited recourse borrowing arrangement (LRBA) regarding the total super balance (TSB) of members as another area of inconsistency with the proposed $3 million soft cap.

The rules governing the treatment of LRBAs and their interaction with a person’s TSB dictates the liability must be proportionately added back to a member’s existing amount of benefits.

To this end, the proportion to be added back to an individual’s TSB is calculated by determining the full amount of superannuation interests supported by the gearing arrangement that are attributable to each member.

However, these add-back provisions only apply to LRBAs entered into after 1 July 2018 and this is where Smarter SMSF technical and education manager Tim Miller has identified a problem with the implementation of the proposed $3 million soft cap.

“As part of the consultation process Treasury has said it wants a simplistic approach to how [the 15 per cent tax on TSBs over $3 million] is calculated for everybody,” Miller noted during a recent webinar hosted by SuperGuardian.

“But if you’ve got one way of calculating the total superannuation balance for one party and a different way of calculating the total super balances for an alternate party, and that alternate party being those who have entered into LRBAs before 2018 versus those who have entered into LRBAs after 2018, then again there is inequity in the way that legislation could potentially work.

“So [this is another issue] that the industry in the SMSF space needs to be mindful of because we already know the approach to the $3 million cap has problems associated with it.”

The Albanese government earlier this year announced its intention to introduce a new tax for super fund members with more than $3 million of retirement savings.

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