The next two months may be last golden opportunity for LRBA

From

Michael Hallinan

The Government is proposing the introduction of new measures that will impact all Limited Recourse Borrowing Arrangements (LRBA), entered into or after 1 July 2018.  These measures, if enacted, will include a member’s share of any outstanding LRBA debt in the calculation of their total superannuation balance, which may have a flow-on effect on that member’s ability to make contributions, including catch-up contributions.

While these measures may be modified or even not enacted, clients who are currently considering entering into an LRBA may see the benefit of making the jump and, ideally settle, before 30 June 2018, to minimise the risk of being caught.

Matters will be a little more complicated for off the plan purchases – as there is no drawdown of the loan until the property is close to completion – which may be in one or two years’ time. While at the moment there is no exception available for this type of transaction, the consultation paper does raise the possibility of transitional rules being instated for LRBAs, which straddle 1 July 2018.

Simplification of super accounts lead to loss of Centrelink grandfathered pension status – [2018] AATA 939

At the suggestion of the fund administrator, a member decided to simplify her super by merging a small accumulation interest (about $11,000) with her pension interest and restarting the pension from the merged interest.

While there was no SIS or Taxation issue with the simplification – and there may have been a reduction in fees – the Centrelink implications were overlooked.

The original pension had commenced before 1 January 2015 and was therefore grandfathered under the Centrelink “deductible” test.  However, the simplification resulted in a new pension which was not grandfathered.  Consequently there was a material reduction in age pension payments.

The fund administrator offered to reverse the simplification.  However, from a Centrelink perspective, this would have been ineffective.  Further, Centrelink had no discretion to disregard the consequences of the simplification.

While the simplification could be set aside by the Court on the basis of a material mistake, instead, the member referred the matter to the AAT which upheld the actions of Centrelink.  The AAT has no jurisdiction to set aside transactions.

The moral – grandfathered pension status is very important and can be easily lost:  [2018] AATA 939.

By Michael Hallinan, Special Counsel Superannuation

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