Date of article: 5 November 2019
Last updated: 5 November 2019
The new law extends the Total superannuation balance test, in certain circumstances, to include the outstanding balance of a Limited recourse borrowing arrangement (LRBA) entered into on or after 1 July 2018.
The test only applies to members:
The measure increases the member’s Total superannuation balance by the share of the outstanding balance of the Limited recourse borrowing arrangement.
Arrangements entered into before 1 July 2018 and refinanced on or after 1 July 2018 are generally excluded.
The amount a member's Total superannuation balance is increased by is calculated using the following formula at the end of a particular income year:
where:
outstanding balance means the outstanding balance on the borrowing at the time of working out your total superannuation balance.
value of all supported super interests means the sum of the values at that time of all superannuation interests in the regulated superannuation fund that are supported by the asset or assets that secure the borrowing.
value of your supported super interests means the sum of the values at that time of each superannuation interest of yours that is supported by the asset or assets that secure the borrowing.
'at a time' means end of an income year for the purposes of adding a share of that outstanding balance to an individual's total superannuation balance. This is because the non-concessional contribution cap rules, the unused concessional cap carry forward rules, the disregarded small fund asset rule and the spouse tax offset rule test an individual's total superannuation balance either 'just before' or 'immediately before' the start of the income year.
Where the measure applies to a member, the outstanding balance is required to be reported on the SMSF's annual return. The first year the measure applies to is the 2019 income year (30 June 2019).
Example
Sue and Peter are the only members of their SMSF. The value of Peter's superannuation interests in the fund is $1.2 million. The value of Sue's superannuation interests is $1.8 million. All of the assets of the fund that support their interests are cash.
Sue and Peter have both retired and therefore satisfy a condition of a release with a nil cashing restriction.
The SMSF acquires a $3.5 million property. The SMSF purchases the property using $1.5 million of its own cash and borrows an additional $2 million using limited recourse borrowing arrangements.
The SMSF now holds assets worth $5 million (being the sum of the $1.5 million in cash and the $3.5 million property). The fund also has a liability of $2 million under the limited recourse borrowing arrangements.
Of its own cash that it used, 40 per cent ($600,000) was supporting Peter's superannuation interests and the other 60 per cent ($900,000) was supporting Sue's interests. These percentages also reflect the extent to which the asset supports Peter and Sue's superannuation interests.
Peter's outstanding balance of the limited recourse borrowing arrangements is:
Sue's outstanding balance of the limited recourse borrowing arrangements is:
Peter's total superannuation balance is $2 million. This is comprised of the $600,000 of cash that still supports his superannuation interest, the 40 per cent share of the net value of the property (being $600,000), and the 40 per cent share of the outstanding balance of the limited recourse borrowing arrangements (being $800,000).
Sue's total superannuation balance is $3 million. This is comprised of the $900,000 of cash that still supports her superannuation interest, the 60 per cent share of the net value of the property (being $900,000), and the 60 per cent share of the outstanding balance of the limited recourse borrowing arrangements (being $1.2 million).
Legislation: Treasury Laws Amendment (2018 Superannuation Measures No. 1) Bill 2019, assent 2 October 2019 (Act 78 of 2019).
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