As an integrity measure, the use of limited recourse borrowing arrangements (LRBAs) by superannuation will be included in a member’s total superannuation balance and for the purposes of the $1.6 million pension transfer balance cap from 1 July 2017.
According to the Government, LRBAs can potentially be used to circumvent contribution caps and effectively transfer growth in assets from the accumulation phase to the retirement phase that is not captured by the pension transfer balance cap. From 1 July 2017, the outstanding balance of an LRBA will be included in a member’s annual total superannuation balance. In addition, the repayment of the principal and interest of an LRBA from a member’s accumulation account will be a credit in the member’s pension transfer balance account. The measure is expected to save only $4 million over the forward estimates.
The Government previously released exposure draft legislation on 27 April 2017 proposing to include the use of LRBAs by self managed super funds in a member’s total superannuation balance and the $1.6 million pension transfer balance cap. Importantly, that draft legislation only proposed to apply on prospective basis in relation to borrowings that are entered into on or after the commencement of the Bill. So the Budget proposal to apply such an integrity measures to outstanding LRBA balances from 1 July 2017 seems a significant shift in policy.