Some Important Aspects of the LRBA change

First – this change only applies to limited recourse borrowings that arise under a loan contract entered into on or after 1 July 2017.

Second – the change does not apply to a new borrowing which replaces an old borrowing where the old borrowing arose from a loan contract entered into before 1 July 2017 and where the amount refinanced does not exceed the outstanding balance on the old borrowing and the new borrowing is secured by the same asset or assets as the old borrowing.

Third – it seems that the “refinancing” exception may only apply once.  If so, then a borrowing arising under a loan agreement dated 20 June 2017 can be refinanced say on 16 July 2019 (so long as there is no increase in the loan amount and no change in the asset (or assets) over which the security has been granted).  However if the refinanced loan of 16 July 2019 was subsequently itself refinanced on say 1 July 2020, then the most recent loan would not be covered by the grandfathering exception.

Fourth – the critical date is the date on which the loan contract was entered into and not the date of the limited recourse borrowing arrangement.  For off the plan arrangements where the contract of purchase was signed before 1 July 2017 but the loan contract is only signed after 1 July 2017, it seems that these arrangements will be subject to the new rules.

Fifth – the obligation to notify the ATO of a repayment falls upon the shoulders of the provider of the pension (ie the trustee) and arises where the value of the pension interest is increased because of the repayment.  If the debt is paid by earnings which relate to the asset (eg in Bert’s case, rental payments or even sale proceeds) then there is no net increase in the value of the pension interest and so no transfer balance credit arises.

Finally – the other proposed change has not gone away.  It seems that there are more issues to consider before the change can be introduced to legislation.