Govt delivers another blow to borrowing in super

The government is looking to implement further changes to superannuation, after its biggest reform sweep in a decade, to limit the use of borrowing by self-managed superannuation funds.

Yesterday, the government released draft legislation which would see the outstanding balance of a limited recourse borrowing arrangement (LRBA) count towards a member’s total superannuation balance.

For example, if a super member has a super balance of $1 million at 30 June and they have an LRBA in place with an outstanding balance of $600,000 at 30 June, their non-concessional contributions cap will be zero for the next income year, under this proposal. 

It appears the government is concerned that SMSF trustees are borrowing money to circumvent the new superannuation contribution caps, which were floated in the May 2016 budget and legislated late last year.

If legislated, the changes could mean that some SMSF trustees will have to quickly sell assets to clear their debt.

Further, this may have a particularly negative effect on small business owners, who have leveraged within their SMSF, for the purpose of holding their business premises in it.

You can access the full draft legislation document here.

This is the latest in a string of policies being floated by both sides of government to limit borrowing in superannuation. 

As reported last week, the Labor Party is reportedly looking to abolish the right for SMSF members to purchase property in their funds, with a view to tackle housing affordability of residential property in Australia. 

According to ATO statistics, SMSF investment in residential housing is estimated to be worth approximately $12 billion.

This represents some 0.18 per cent of the Australian housing market, which is worth about $6.43 trillion.

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