You may have not heard that there is currently a bill in place which suggests amendments to the Income Tax Assessment Act 1997 and Superannuation Guarantee Administration Act 1992.
This amendment was suggested in order to help encourage employers to make any self-corrections on non-compliance superannuation guarantees over a twelve-month period and to enable certain employees with multiple jobs to apply for an employer shortfall exemption certificate which prevents their employer from having a superannuation guarantee shortfall if they do not make any contributions for a certain amount of time.
So, what does this mean for the average tax payer? If this amendment is passed and becomes law, this could mean that the total superannuation balance for an individual member may be increased by their share of the outstanding balance as a cause of a limited recourse borrowing arrangement. This increase, however, will only apply to individual members who satisfy all the relevant conditions of release with a zero-cashing restriction or someone whose superannuation interests are supported by assets that may be subject to a limited recourse borrowing arrangement between the superfund and its associates.
So, what are the conditions of release under theses conditions? For zero cashing restrictions, in order to have your super released you will need to be either retired, have a terminal medical illness or condition, have permanent incapacity and / or be at the age of 65 years. Only individual members who meet the requirements will be entitled to have their total superannuation balance increased.
For example, if John and Jenny are both 65 and retired, have a Self-Managed Super Fund together worth roughly one million dollars each comprised of cash only, they will satisfy two conditions on the zero cashing restrictions release. If, however, Jenny is 61 and retired, while Pierre is 50 and still working, then only Jenny will satisfy one of the conditions on the release.
What you should consider when getting a limited recourse borrowing arrangement
If you have a self-managed super fund and are considering acquiring an asset via the limited recourse borrowing arrangement route, you will need to consider the possible effects of this proposed law on each super fund member’s total superannuation balance before going ahead with the arrangement. One main thing to consider is whether or not each member of your superfund will be able to meet the conditions for a zero-cashing restriction release.
If you have already commenced a limited recourse borrowing arrangement on or after July 1st, 2018, then you may need to consider if this proposed law will have any impact on each of your members’ total super balance. If any of your members’ balance will be affected, you can consider possible strategies to either manage the increase to the affected member’s balance or ensure the limited recourse borrowing arrangement can be repaid.
Before implementing any strategies, it is best to consider if a certain strategy you are planning will trigger an application of general anti-avoidance provisions. We always recommend discussing with your Self-managed superfund specialist on possible strategies that can be implemented.
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