Important SMSF Borrowing News

24 May 2018

Written by

David Busoli, Principal

Legislation is now going before Parliament on the contentious issue of the inclusion of the outstanding balance of a limited recourse borrowing in the calculation of a member’s total super balance. Though I remain totally opposed to the recasting of debt as an asset and believe that this measure is poorly considered and inequitable at least the legislation is not as bad as it was originally planned.

The outstanding balance of a limited recourse borrowing will be counted as an asset for calculating a member’s total super balance if the loan is from a related party OR the member has triggered a condition of release with a nil cashing restriction. This will generally be retirement after age 60 or the attainment of age 65. Related party loans will be counted at any age.

The portion of the loan that will be counted will be prorated to the percentage involvement the member has in the geared asset. Let’s consider 2 members with identical balances in a simplistic SMSF. Let’s assume that member one has a fully preserved account while member two’s account is fully unrestricted non-preserved. If the loan is arm’s length, only member two’s share (50%) will be counted as part of Member two’s total super balance. Member one’s total super balance will be unaffected. If the loan was from a related party both members would be affected.

This Bill excludes limited recourse borrowings in place prior to 1 July 2018. Neither will it apply to any contracts entered into prior to that date or to the subsequent refinancing of loans that existed prior to that date.

The total super balance as at the 30th June of the prior year determines a number of items. The most significant is the ability to make non-concessional contributions. Incongruously, the ability to make a non-concessional contribution to pay down debt can be lost because of the debt.

Additional planning, scrutiny and reporting will be required.

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