The Treasury Laws Amendment (2018 Superannuation Measures No. 1) Bill 2019 was passed by both houses of parliament on 19 September 2019.
What will change?
If the bill receives royal assent it will become law, amending the calculation of total superannuation balances (TSB) in certain circumstances, for LRBAs (limited recourse borrowing arrangements) that were established on or after 1 July 2018.
Prior to the bill being passed, calculation of a member’s TSBs would include accumulation and retirement super balances, plus any rollovers in transit between superannuation funds.
It is extremely important to know what your SMSF clients TSB is at 30 June each year, as it determines contribution eligibility and the fund’s ability to segregate assets.
Any LRBAs that were entered into on or after 1 July 2018, will impact on the TSB calculation for fund members under the following circumstances:
- The fund used a related party limited recourse loan; or
- Fund member/s has satisfied a condition of release and has nil cashing restrictions
Note: SMSFs which entered into LRBAs prior to 1 July 2018 and refinance the loan post 1 July 2018, will not be caught by these new rules as long as they are refinancing to maintain the existing asset.
How will this affect my clients?
Clients who are impacted will need to review contribution activity from 1 July 2019 to date, as they may have made ineligible non-concessional contributions to their SMSF this financial year.
For those SMSFs with member/s that are caught by the new LRBA requirements, will amend their TSB calculations so that it takes into account the outstanding balance of a limited recourse borrowing arrangements. As a result, a member/s TSB may be increased by the share of the outstanding balance of the LRBA, commenced after 1 July 2018.
What do I need to do?
As mentioned previously, you may have clients that have made ineligible contributions to the fund already this financial year. It is important that you review your SMSF client base and notify your clients that are impacted.
SMSF trustees approaching retirement with an outstanding loan on a property will need to consider their options when planning contribution strategies for the 2020 financial year and beyond.
How can Partners Wealth Group help?
If you have any questions, require assistance or would like further clarification on any aspect of your clients’ needs, contact John Lethbridge today on 1800 333 143 to discuss your specific requirements.