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Government’s proposed LRBA changes explained

SMSF, LRBA, limited recourse borrowing arrangement, self-managed super, Australian government, superannuation, retirement income, retirement news, finance,

The government has introduced a bill to Parliament that includes amendments to the ways limited recourse borrowing arrangements will affect SMSF members’ transfer cap balance and total superannuation assets.

As per the amendments, from 1 July 2017, any limited recourse borrowing arrangements (LRBAs) entered into on or after that date will require SMSF members to record a credit in their transfer balance cap account where an LRBA is held in retirement phase has its principal and interest repaid from funds held in accumulation phase.

The transfer balance cap will need to be adjusted each time a repayment is made to account for the increased value of the superannuation assets.

The bill takes into account where funds used to repay an LRBA come from. Payments that are made from other assets in the SMSF that support the members’ interests will not reduce the available cap space an individual has, as the use of funds from the SMSF will reduce the overall value of the held assets by the same volume as the repayment on the LRBA.

The initial exposure draft also included a measure which requires the outstanding loan balance to be included in the calculation of the member’s total super balance.

This means that in a fund with two members, if 40 per cent of an asset bought under an LRBA is used to support member A, then 40 per cent of that asset’s overall value (including both what is owed and what has been paid off already) will count when member A measures their total superannuation balance.

However, this was not included in the recent bill with the government still consulting on this measure.

These proposals are yet to pass Parliament and will not come into effect until the first day January, April, July, or October (depending on which comes first) after the bill receives royal assent.

Government’s proposed LRBA changes explained
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