The Government has released a bill to “add back” limited recourse borrowing arrangement (LRBA) loans in the calculation of a member’s total superannuation balance (TSB). The measure in the bill has been “watered down” from the original released draft bill (which was widely criticised for being too broad and too difficult to administer).
The measure works by including in a member’s TSB the amount of the member’s “share” of the LRBA loan(s) in accordance with a formula. In effect, the formula applies by dividing the value of the member’s interest in an asset subject to the LRBA against the total value of the asset. So, in an unsegregated fund, if a member had 30% of the member benefits in the fund then 30% of the LRBA loan would be added back into their TSB.
Importantly, the measure will only apply to self managed superannuation funds (SMSFs) in either of the following two situations:
- The member has met a nil condition of release (eg aged 65+, retired after preservation age etc) – this is to prevent re-contribution strategies; or
- The lender under the LRBA is a related party.
Therefore, members who take out LRBAs with unrelated parties will not be affected by the measure unless they have met a full condition of release. Even for those member’s affected by the measure, it will only have an adverse effect on them if it causes them to go over a TSB threshold (for example, it pushes the member’s TSB over $1.6 million with the result that they cannot make non-concessional contributions).
The measure will only apply to LRBAs entered into from 1 July 2018. The measure does not apply to pre-1 July 2018 LRBA loans including such loans that are later refinanced. Nor do they apply to post 1 July 2018 loans over assets acquired under contracts that were entered into prior to 1 July 2018.