Integrity measures included in Treasury Laws Amendment (2018 Superannuation Measures No. 1) Bill 2019 have now been enacted with an effective date of 1 July 2018. There have been amendments made to non-arm’s length income (NALI) provisions and Limited recourse borrowing arrangement (LRBA) amounts will now be included in total superannuation balance (TSB) calculations. The bill passed both houses on 19 September and reached assent on 2 October 2019.
NALI provision amendments:
The definition of NALI has been expanded. From the 2018-19 income year onwards, the ordinary or legal income of a super fund will be NALI and taxed at the top marginal rate. This has been introduced to ensure SMSFs and other complying superannuation entities cannot evade the NALI rules by entering into schemes involving non-arm’s length expenditure, including where expenses are not incurred. Any capital gains from a subsequent disposal of an asset may also be treated as NALI.
LRBA amounts included in TSB calculation:
Where an SMSF has an LBRA that was made under a contract that has been entered into on or after 1 July 2018, the calculation of an individual’s TSB will now include any outstanding LRBA amount attributable to each member’s interest. This will apply if:
- The LRBA is with an associate of the SMS. In this case, all members of the fund whose interest is supported by the asset purchased with the LRBA must include their portion of the outstanding balance of the LRBA amount in their TSB calculation. Or;
- A member of the fund met a condition of release with a nil cashing restriction. In this case, the member must include the outstanding LRBA amount attributable to their super interest in their TSB calculation.
This change does not include the refinancing of an LRBA that was made under a contract entered into before 1 July 2018, where the new borrowing is secured by the same asset or assets as the old borrowing and the refinanced amount is the same or less than the existing LRBA.
If you’ve already lodged your 2019 SMSF annual return and are affected by these new measures, you may need to amend your return. Members of an SMSF that has an LRBA affected by this new law, may have an inaccurate TSB. If affected, you will need to calculate your own TSB until March 2020 at the earliest while the ATO systems are being updated.