Key Superannuation Changes for July 2017: Borrowing in Super
Continuing our series on Key Superannuation Changes for July 2017, we look at how the rules will affect borrowing in super.
Notwithstanding that many funds will have quite significant loans to repay, the legislation did not include a concession for contributions up to the amount of those loans.
This contrasts with the position in 1999, when changes were made to prevent funds investing in associated unit trusts. The legislation included grandfathering to enable funds to continue investing in those unit trusts up to level of the loan in the unit trust.
Since the bills have passed there has been no publicity generated around the problem.
Accordingly, repaying the debt with non-concessional contributions may either be impossible or severely compromised as from 1 July 2017.
Consideration must be given to how loans will be repaid under the new regime, and whether or not loans should be restructured.
Clearly the current ability to make superannuation contributions, which changes on 1 July 2017, should be used if appropriate.
Another possibility is to renegotiate loans if possible to interest-only, hence removing the immediate need to repay capital.
If the lender is a related party, consideration will need to be given to the ATO position on related party loans, including whether or not it is possible to meet the “safe harbour” guidelines or whether it is practical to do so.
Importantly, the ATO approach acknowledges that if a fund can demonstrate that the loan is available in the marketplace then it should be accepted.
It may be worthwhile considering if a loan can be renegotiated to, say, interest-only followed by, for example, the acquisition of that loan by a related party if circumstances permit.
The loan acquisition could be funded by a new loan from the bank to the related party, but leaving the fund without the problems of having insufficient contributions to enable capital repayments.
In discussing superannuation interests, including contributions with clients, the licensing requirements need to be met.
In this regard ASIC has recently issued some guidance on accountants giving advice, in a release entitled “AFS Licensing Requirements for Accountants who provide SMSF Services”.
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