Total Super Balance Trap

2 Nov 2022

Written by

David Busoli, Principal

Members of SMSFs with limited recourse borrowings often have the intention of paying off the debt using future non-concessional contributions. Due to a bizarre piece of legislation, the logic of which has always escaped me, there are circumstances where the presence of the borrowing prevents the making of the contributions intended to pay it off. This can occur when the debt is counted as a member asset for total super balance purposes.

The amount that is counted is the member’s pro-rata share of the debt if:

  • the loan is from a related party or associate or
  • the loan is not from a related party or associate, but the member has triggered a condition of release with nil cashing restrictions. This includes retirement, terminal medical condition, total & permanent disablement or attaining age 65.

Loans that were in existence prior to 1 July 2018, including those that have been refinanced after that date, are exempt but any new LRBAs commenced from 1 July 2018 are included so make sure you take this into account when calculating eligibility for non-concessional contributions.

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