The ATO has issued a ruling, setting out its approach to proposed changes to superannuation rules affecting limited recourse borrowing arrangements and the calculation of total superannuation balances. Treasury laws Amendment (2018 superannuation Measures No.1) Bill 2018 requires that the outstanding balance of a borrowing made under a limited recourse borrowing arrangement in certain circumstances be included in a total superannuation balance.
The new rule applies only to members who have satisfied a condition of release with nil cashing restriction, or those whose interests are supported by assets that are subject to an LRBA between the super fund and its associate.
If the bill is passed, the new rule will apply to new LRBAs entered into on or after 1 July 2018.
The ATO ruling, an update of its Law Companion Ruling setting out the calculation of total superannuation balances, provides the following example:
- Harry and Beth are members of the H&B Superannuation Fund, an SMSF. Harry is 65 and Beth 60. They have not commenced any income streams from their SMSF. Neither has an interest in any other super fund.
- At 28 June 2019, Harry’s balance is $600,000 and Beth’s is $400,000. The balances are held in cash.
- On 29 June, the SMSF enters into an LRBA, borrowing $1 million. Together with $5000, 000 of its cash holdings, the SMSF uses the borrowing to buy a commercial property for $1.5 million.
- Of the $500,000 cash used, $300,000 was supporting Harry’s superannuation interest and $200,000 was supporting Beth’s. These proportions also reflect the extent to which the commercial property supports Harry and Beth’s superannuation interests.
- At the end of 30 June 2019, the SMSF has total assets of $2 million, made up of the market value of the commercial property of $1.5 million and $500,000 in cash. The SMSF also has a liability of $1 million.
- As Harry is age 65, he has met a relevant condition of release with a nil cashing restriction. His total superannuation balance will, therefore include an LRBA amount, which is 60 per cent of the value of the outstanding balance of the LRBA. His total superannuation balance at 30 June is $1.2 million.
- There is no LRBA amount to be included as Beth does not satisfy a relevant condition of release with a nil cashing restriction, nor is the lender an associate of the super fund. Beth’s total superannuation balance at 30 June is $400,000.
- A total superannuation balance is the sum of accumulation phase value, transfer balance (if you have an income stream in the retirement phase) any rollover benefit and, in certain circumstances, the outstanding balance of any LRBA.
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