Despite the federal government’s decision to include the outstanding balance of limited recourse borrowing arrangements (LRBA) in a member’s annual total super balance, advisers can still find opportunities for their SMSF clients ahead of the new rules commencing, according to a superannuation and estate planning legal expert.
The measure was confirmed in the 2017 federal budget, in addition to clarifying the repayment of the principal and interest of an LRBA from a member’s accumulation account will be a credit in the member’s transfer balance account.
Townsends Business and Corporate Lawyers superannuation and estate planning special counsel Brian Hor said LRBAs were more important than ever as a way of leveraging returns since both concessional and non-concessional contribution (NCC) limits were being reduced from 1 July.
“Careful planning of LRBAs can assist in managing a client’s total super balance where there are multiple fund members,” Hor told the Super Central Bacon, Super and Eggs seminar in Sydney last week.
“And particularly for younger clients with a low total super balance, using a carefully managed LRBA strategy can be a great, tax-effective way to lock in the acquisition of high-performing assets, funded concessionally taxed super contributions and earnings.”
However, he stressed advisers should get clients to enter into appropriate LRBAs before the new super rules commenced.
“It’s a good idea to do it as soon as possible,” he said.
“But once the new rules have started, you ought to perhaps maximise a client’s NCC before the start of the financial year in which the LRBA amount is counted towards their total super balance – so it’s about timing.
“Of course, if you do put a client into an LRBA, please do the numbers and have regard to the impact it may have, and make sure any new LRBAs can be sustainably funded from further contributions and asset earnings in their particular situation.”
