The status of limited recourse borrowing arrangements in the new superannuation balance cap regime is at the top of the list of queries financial advisers have for the technical experts at wealth management companies.
BT Financial Group technical consultant, Tim Howard, says the changes to LRBA rules and their impact on self-managed super fund trustee clients has been the most topical issue over the past few months.
In April, the Government issued a consultation paper, which set out measures designed “to ensure that the transfer balance cap rules apply appropriately where there is a repayment of a limited recourse borrowing arrangement that transfers value from accumulation interests into retirement phase interests.”
The draft included two key proposals: that an individual’s share of the outstanding balance of an LRBA would be included in their total superannuation balance; and that repayments of LRBA amounts would generate a credit in a pension transfer balance account where the repayment was made with funds held in accumulation.
The Government is concerned to make sure that SMSF trustees do not use borrowing strategies to get around the new transfer balance cap.
However, when legislation was introduced in May it included the repayment provision but not the outstanding balance provision.
An information memorandum accompanying the bill says: “An individual will receive transfer balance credit where a superannuation provider makes a payment in respects of an LRBA that increases the value of a superannuation interest supporting a retirement phase superannuation income stream.
“This change ensures that the transfer balance cap captures the shift of value that occurs where liabilities arising from the LRBA are paid using accumulation phase assets.”
The measure only applies to borrowing arrangements entered into after July 1.
Howard says the Government deferred a decision on whether the value of the debt would contribute to the total superannuation balance but the issue has not gone away.
“We don’t know the timing but our understanding is that the Government still intends to bring that measure in. The intention is still there,” he says.