Superannuation always seems to be changing. The Treasury Law Amendment Bill 2019, a new super law, was passed last week. This will make changes to the way certain individuals limited recourse borrowing arrangements work, which might be confusing for some. We simplified the specifics of the new law for you below.
What will this change?
The limited recourse borrowing arrangements refers to the borrowing of money to acquire an interest in an asset. Once this asset has been acquired, it has to be held on trust for the self-managed superannuation fund trustee, who is the beneficial owner of the asset. The trustee will have a right to acquire legal ownership of the asset once the loan is repaid.
Specifically, these changes will apply to individuals with a limited recourse borrowing arrangement as part of their superannuation interest and have satisfied a “full” condition of release where LRBA was entered into on or after 1 July 2018, or where the lender is an “associate” of a self-managed super fund. This means that the individual with the LRBA cannot lend money to their self-managed super funds to acquire an asset under an LRBA or make additional no-concessional contributions. Additionally, they can’t make withdrawals to reduce their total superannuation balance below $1.6 million.
Is everyone affected?
While this new law will certainly put restrictions on some members limited recourse borrowing arrangements, not everyone will be affected by it. Any LRBA that was established prior to 1 July 2018 is exempt from these changes, or the refinancing of any outstanding balance of borrowings arising under contracts entered into prior to 1 July 2018. Also, the individuals that haven’t met a “full” condition of release or where the lender was an “unrelated party” are exempt as well. Essentially, if you established a LRBA after July 2018, you have a new set of restrictions in place to consider on all of your asset ventures.
Still have questions about how the new super law will affect your LRBA? For expert advice on all of your superannuation concerns, speak to our specialists at Morrows.