Last night Treasury released a rather nasty proposed amendment for hasty public comment. It is a very significant amendment. It was issued on a Thursday night with all submissions required by next Wednesday. Monday is a public holiday in most States. The amendment focuses on limited recourse borrowings in two ways.
Transfer Balance Credits
Where a fund contains both accumulation and pension interests any payments of principal or interest that are not proportionate to the pension interest’s share will be counted against the pensioner’s transfer balance account. That is, if a fund contains 50/50 pension and accumulation interests, any payments of interest or capital over 50% that are made by the accumulation interest will be credited to the pensioner’s transfer balance account as this results in an increase to the pension account at the expense of the accumulation account. If payments of principal and interest are made 50/50, in accordance with the proportion of accumulation and pension interests, there is no effect. This happens already unless the asset is a segregated asset but, even under this variation, there will not be an increase in the pension account at the expense of the accumulation account so this amendment is superfluous.
Total Super Balance
The effect on the total super balance is more significant and makes no sense. The total super balance dictates a member’s eligibility for non-concessional contributions, concessional contribution catch-ups, asset segregation for tax purposes and the spouse tax offset. It is not to be confused with the transfer balance cap. It is calculated, generally, by adding the accumulation account balance to the transfer balance account (not the pension balance) for each member. The amendment will require the member’s proportionate share of any LRBA to be added as well. For example, if a member in a single member fund had a pre-amendment total super balance of $900,000 and this balance was comprised of $1.6m in assets and a $700,000 LRBA then, post amendment, their total super balance would be $1.6m. This would not affect the member’s eligibility to start a pension for an additional amount of $700,000 but it would make it virtually impossible for the member to increase their accumulated savings to this extent as they would lose their eligibility to make non-concessional contributions.
It is highly likely that the first part of the amendment will proceed but we would reasonably expect that the second will be rightfully consigned to the same bin holding the $500k lifetime cap proposal. In any case the amendments contain transitional provisions stating that they will only apply to new borrowings after Royal Assent.
