SMSF loans hit in budget fallout

Investors attempting to make their SMSF loans compliant by 30 June this year are at risk of being “badly caught out” by one of the government’s budget measures.

In Tuesday’s budget, the government proposed introducing a $500,000 lifetime cap for non-concessional contributions to superannuation.

If the measure becomes law, from 7.30pm AEST on 3 May, the cap will take into consideration all non-concessional contributions made since 1 July 2007.

In cases where the investors exceeded the cap prior to commencement of the new rules, they will be taken to have used up their lifetime cap but will not be required to take the excess out of the superannuation system.

However, where the excess occurs after commencement, they will be notified by the ATO to withdraw the excess from their superannuation account, or be subject to penalties.

Trustees with limited recourse borrowing arrangements (LRBAs) that are not currently on commercial terms, which the ATO requires by 30 June, will face significant difficulty if they were planning to use the contribution caps to adjust their loan to value ratio (LVR).

LVRs are one of the key measures the ATO takes into consideration when assessing whether or not a loan is structured on commercial terms.

Senior manager for strategic advice at Perpetual Colin Lewis said it’s prudent to integrate this budgetary measure into an SMSF's investment strategy.

He noted there have been "numerous" superannuation laws that have come into effect from budget night, even though it may have taken several months for the legislation to be officially finalised.

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