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  • Recent law changes affecting SMSFs

    Two previously-announced integrity measures included in Treasury Laws Amendment (2018 Superannuation Measures No. 1) Bill 2019External Link have now been enacted, with an effective date of 1 July 2018.

    This will affect how you report limited recourse borrowing arrangements (LRBAs) and non-arm's length income (NALI) for some self-managed super funds (SMSFs) from 2018–19.

    We have updated our SMSF annual return instructions 2019 to let you know how to report your clients' NALI and LRBA amounts. If you have already lodged 2019 SMSF annual returns without consideration of the new laws, you may need to amend the returns. You can do this using the practitioner lodgment service (PLS).

    NALI provision amendments

    The definition of Non-arm's length income (NALI) has been expanded. It now explicitly says, from 2018–19, the ordinary or statutory income of a super fund will be NALI, and taxed at the top marginal rate where there is a scheme in which the parties are not dealing with each other at arm's length, and the fund incurs a loss, outgoing or expenditure (including a nil amount) either:

    • in gaining or producing the income, that is less than what would be expected had the parties dealt with each other at arm's length in relation to the scheme
    • to acquire a fixed entitlement to the income of a trust or in gaining or producing the income from a fixed entitlement that is less than would be expected had the parties dealt with each other at arm's length in relation to the scheme.

    Our draft Law Companion Ruling LCR 2019/D3 gives guidance and feedback on this change, and Practical Compliance Guideline PCG 2019/D6 provides our compliance approach to this new law.

    LRBA amounts now included in TSB calculation

    The calculation of an individual’s total super balance (TSB) will include, in certain circumstances, the outstanding limited recourse borrowing arrangement (LRBA) amount attributable to each member's interest where the SMSF has a LRBA that was made under a contract entered into on or after 1 July 2018.

    This will apply if:

    • the LRBA is with an associate of the SMSF. 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
    • a member of the fund has 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 a LRBA that was made under a contract entered into before 1 July 2018, where both:

    • the new borrowing is secured by the same asset or assets as the old borrowing
    • the refinanced amount is the same or less than the existing LRBA.

    If you lodged your client's 2018–19 SMSF annual return prior to this law being enacted and reported an amount in sections F or G, label Y Outstanding limited recourse borrowing arrangement amount, we will contact you if you are the authorised contact so we can discuss what action is required.

    TSB calculation

    Let your clients know if they are a member of an SMSF with a LRBA affected by this new law, their total super balance (TSB) in ATO Online on myGov may be inaccurate. It will also show incorrectly in Online services for agents.

    Pending our systems update, we anticipate your clients' TSB will be accurate after March 2020. Until then, if your clients are affected you may need to help them re-calculate their own TSB by adding their share of the outstanding LRBA amount to their TSB amount shown on ATO online and Online services for agents.

    See also:

    Last modified: 22 Oct 2019QC 60442