Limited Recourse Borrowing Arrangements | January 2018

Earlier this month the Australian Government released a consultation paper containing proposed amendments to LRBA legislation.

 

If successful, the proposed amendments would come into effect from 1 July 2018, and would see a member’s share of the outstanding balance of an LRBA entered into on or after 1 July 2018 in their total superannuation balance (TSB).

This integrity measure addresses the potential for an SMSF member to use an LRBA to facilitate additional non-concessional contributions and increase the fund’s asset base beyond what would otherwise be possible under the contributions cap.

Keep in mind that the proposed measure is to come into effect from 1 July 2018 and should only affect those funds whose members have $1.6 million or more attributable to their TSB. The major concern for commercial lenders will be that SMSFs with members around the $1.6M TSB, will have reduced capacity to service LRBA loans. This is when the borrowing cannot be repaid using the fund’s own cash reserves in combination with concessional contributions, as they will not be permitted to make additional non-concessional contributions.

The proposal should not affect a fund’s ability to borrow in many situations, including:

  • Where a member has a TSB of more than $1.6 million but the fund repays the LRBA with income from the LRBA asset, other fund earnings or concessional contributions; or
  • Where the member’s TSB (including the outstanding balance of the LRBA) is below $1.6 million, allowing the member to make non-concessional contributions to help meet the LRBA repayments.

There has been pushback from the SMSF Association recommending that proposed amendments should be only to related-party LRBAs.

We will keep you informed of updates prior to 30 June 2018. You can view the full consultation paper here.

In the meantime, if this article has raised any questions for you, please contact John Lethbridge, SMSF Specialist Advisor on 1800 333 143.

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.