The ATO has issued an update on the progress of the government’s superannuation tax reform package. The update, which deals with transition to retirement income streams (TRIS), total balance caps and limited recourse borrowing arrangements (LRBAs) among other things, includes some ‘minor’ amendments to super reforms that may not be so minor at all.
For LRBAs, regarding concessional and non-concessional contribution caps, there was concern that some SMSF trustees were making payments of lump sums to members, who then loaned back the money to the fund to enable an asset purchase through an LRBA.
This strategy allowed members to continue making contributions by keeping their net balance below the total superannuation balance threshold.
The suggested solution that has been decided on is to amend the provisions that guide the total balance cap rules so that the outstanding balance of an LRBA each year is counted towards the member’s annual total super balance.
Another LRBA-related matter that was deemed to be needing a fix regarded the way in which some SMSF trustees were paying retirement phase liabilities from accumulation phase income. This was being achieved through the use of an LRBA, and meant that there was an effective transfer of the accumulation growth portion to the retirement phase, which would not have been captured by the transfer balance cap.
The intended solution is to amend the credit provisions to ensure the amount of the repayment of the principle and interest of the LRBA is a transfer balance credit in a member’s account.
Regarding the transfer balance cap, here surfaced some concerns on how the death benefit changes could affect non-retirement age spouses. As the rules stand, a non-retirement age spouse looking to comply with the transfer balance cap before July 1 this year can either:
Cash out the excess, which will be taxed at marginal rates, orRoll the excess into an accumulation account, where it will not be able to be accessed until they reach retirement age.
The alternative would be to simply remain in breach of the balance cap after July 1, but rely on the “six month rule” that is part of changes to death benefit provisions. This would mean any excess taken as a lump sum would no longer be subject to marginal tax rates.
The solution proposed is to amend the changes to that six month rule so that it applies from a date before July 1. This will result in spouses who commute death benefits in order to comply with the total balance cap will not face adverse tax consequences.
More amendments to the super reform package can be found in the document the ATO has made available (download the document here).
#[legislation], [Smsf], [smsfs], [super refirm], [superannuation]
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