Related Party Loans to SMSFs – may need to be rectified?

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Are your clients’ LRBAs consistent with ATO’s arms-length guidelines? If not, then these will have to be rectified by 31st January 2017 or may face higher tax rates?

Full details at: https://www.ato.gov.au/Super/Self-managed-super-funds/In-detail/News/ATO-s-deadline-for-review-non-arm-s-length-LRBAs-extended/

PCG 2016/5 considers two safe harbours setting out relevant practical compliance guidelines:

  • Safe Harbour1 : The asset acquired is real estate property
  • Safe Harbour2 : The asset acquired is a collection of stock exchange listed shares or units

Just some instances of possible non-compliant LRBAs in terms of Safe Harbour 1 guidelines:

  • No written and executed loan agreement,
  • No interest charged on the loan,
  • Total loan amounts on asset is above 70%,
  • No security/ registered mortgage,
  • Term more than 15 years,
  • No principal & interest reductions.

Full details at: PCG 2016/5 https://www.ato.gov.au/law/view.htm?DocID=COG/PCG20165/NAT/ATO/00001

If your clients require their existing LRBAs refinanced before 31st January 2017, then they will need to start the process now.

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