Limited Recourse Borrowings and Contributions Caps

24 July 2018

The proposal by the Government to include the debt amount outstanding of certain limited recourse borrowing arrangements (LRBAs) in the determination of the entitlement to contributions caps is still before Parliament.  The relevant amendments are set out in Treasury Laws Amendment (2018 Superannuation Measures No 1) Bill 2018.

It was initially proposed that the proposal would apply to LRBAs which commenced on or after 1 July 2018.  The proposal will still apply to LRBAs which commence on and after 1 July 2018 although the necessary legislation will be enacted sometime after 1 July 2018.

The effect of the proposal is to include the amount of the LRBA debt outstanding as at 30 June of each financial year (beginning with the 2018/19 financial year) in the total superannuation balance of the member or members participating in the LRBA.

Inclusion of the LRBA debt will affect:

(a)    the amount of the non-concessional contribution cap space of the member;

(b)    the ability of a member to make "catch up" concessional contributions – that is the ability of the member to utilise the carry forward of unused concessional contributions cap space;

(c)    the ability of a member to both utilise the "bring forward" of non-concessional contributions and also the amount of the amount of the cap space which can be brought forward;

(d)    the entitlement of the spouse of the member to claim a tax offset for contributions made by the spouse for the member; and

(e)    the ability of a small superannuation fund to utilise the "segregated" asset method to determine the exempt current pension income of the fund.

The measure will only affect LRBA which commenced on or after 1 July 2018 where:

(a)    the lender is an associate of the SMSF; or

(b)    the member or members participating in the LRBA have satisfied an unrestricted release condition (such as attained age 65 or being retired for super purposes) irrespective of whether they are receiving a pension.

The measure will not apply to a refinancing of a pre 1 July 2018 LRBAs where the refinancing occurs on or after 1 July 2018 so long as the refinanced borrowing (the new borrowing) is secured by the same assets as the old borrowing, and the amount of the new borrowing is equal to or less than the payout figure for the old borrowing.

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