But what that practically meant for pre-existing
arrangements has not been clear until now.
The ATO has confirmed, in a speech at the AMP 'SMSF In
Practice' conference on 20 October 2015, that it will allow a
grace period to allow SMSFs to rectify existing interest-free, low
rate or uncommercial loans from related parties before 30 June
2016. In particular, they said:
... the commissioner will not allocate resources to
undertaking any compliance activities or actions in relation to
those arrangements provided commercial terms are in place by 30
June 2016. This timeframe is intended to allow funds sufficient
time to further consider their particular circumstances and
arrangements and, if necessary, to restructure arrangements on
commercial terms without detriment.
If your clients have loans to SMSFs that are interest-free, low
rate or include other terms that are not commercial, make sure you
take action to place the arrangement on arm's length terms
before 30 June 2016. This is more than just the interest rate
– the ATO's view applies to the arrangement as a whole,
including documentation, LVRs, security and repayment terms. Even
where there is an existing private binding ruling (PBR), make sure
the actual circumstances are identical to those in the ruling, or
the protection of the PBR may not be available. Also, check the
years to which the PBR applies –ATO private rulings will
usually only apply for specified financial years.
Also, given the ATO's renewed focus on this area, it is
essential that clients are complying with the terms of the
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The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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