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19 June 2017

LRBAs and the new amendments to the 2016 Budget measures

The proposed amendments to the 2016 budget measures for the treatment of transition to retirement income streams and limited recourse borrowing arrangements were passed on 15 June 2017

The proposed amendments to the 2016 budget measures for the treatment of transition to retirement income streams and limited recourse borrowing arrangements were passed on 15 June 2017 – Treasury Laws Amendment (Fair & Sustainable Superannuation) Bill 2016.

These amendments change how the 2016 Budget measures affect those with a TRIS or about to enter into an LRBA.

Limited recourse borrowing arrangements

Repayments of loans owing by SMSFs under LRBAs may now also count towards transfer balance caps.

The amendments provide that a transfer balance account credit arises where an amount is paid to reduce an outstanding borrowing under an LRBA, and it results in an increase in the value of the superannuation pension interest.

This is designed to provide a transfer balance account credit where an asset the subject of an LRBA supports a pension, and funds used to make the loan repayment come from the accumulation phase (for example a contribution) or reserve to reduce the debt. This has the effect of moving funds from accumulation phase into pension phase, and will now give rise to a transfer balance account credit.

These rules will not apply to existing LRBAs as they only apply to loan contracts entered in after 1 July 2017. However, these new laws will apply to LRBAs where a property purchase contract has been entered into before 1 July 2017 but the loan documents are not signed until on or after 1 July 2017.

Refinancing a pre-1 July 2017 limited recourse loan is also likely to remain exempt from these rules.

The other proposed amendments to have an outstanding debt on an LRBA count towards a member’s total superannuation balance were not passed. However, this measure may still be passed following review by the Senate committee.

For information about how the changes affect those with a TRIS, click here.

If you would assistance addressing these issues, please contact a member of our team.

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This publication is for information only and is not legal advice. You should obtain advice that is specific to your circumstances and not rely on this publication as legal advice. If there are any issues you would like us to advise you on arising from this publication, please let us know.

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