Draft LRBA legislation update – May 2017

As reported last month, the government has released new draft legislation addressing concerns over the potential for SMSF members to use Limited Recourse Borrowing Arrangements (LRBAs) to circumvent their contribution caps. You can view the full announcement on the Australian treasury website, and read our analysis below.

It is important to note that the amendments will only apply to LRBAs that are entered into after the amending legislation receives Royal Assent.

The proposed amendments are:

  • The proportional share of a member’s outstanding balance in an LRBA of the SMSF will count towards their total superannuation balance. Members with a total superannuation balance of $1.6 million or more are not eligible to make non-concessional contributions to superannuation.
  • The changes to the transfer balance cap rule will mean that where an LRBA is held in the retirement phase and is being paid down with accumulation phase money, a transfer balance cap credit will arise for repayment of the LRBA. The repayment must increase the value of the asset in retirement phase for a credit to arise.

With this in mind, it is important that any clients looking at entering into LRBAs in the near future, should be wary of these amendments and if passed, whether they will apply to their LRBA.

Contact your Partners Wealth Group advisor on 1800 333 143 now, to discuss how we can help.

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This article contains information that is general in nature. It does not take into account the objectives, financial situation or needs of any particular person. You need to consider your financial situation and needs before making any decisions based on this information.