The ATO has been highlighting their concerns with
related party loans in SMSF borrowing arrangements (LRBAs), and
particularly whether they have been made on commercial terms. A new
announcement by the ATO has highlighted the importance of acting
quickly to ensure compliance.
Last year, the ATO announced it would not take action on
existing LRBAs provided 'commercial terms are in place by 1
July 2016' (
see our previous alert).
The ATO has now been reported in a recent SMSF Adviser
as stating that LRBAs involving a related party must be on
commercial terms for the whole of the 2015/16 year
by 1 July 2016. This is very different to making sure everything is
in place and effective from 1 July 2016.
Putting a loan on commercial terms involves more than charging
the same interest rate as a bank. Other aspects of the arrangement
must also align with what an arm's length financier would
a written document containing the same sort of terms;
requirements for interest and principal repayments;
a similar loan to value ratio to that required by banks for
adequate security (including registering a mortgage and taking
And it is essential all agreed terms are actually complied with,
and enforced if necessary.
The ATO is working with the industry on safe harbour standards
so there is certainty around what must be in place. The best
evidence is mirroring the terms of a formal written offer or
proposal from an arm's length financier.
Advisers must take action now to ensure LRBAs are documented
with commercial terms, and have operated from at least 1
July 2015 on those terms.
This is one of the topics the CGW team will be discussing at our
Annual SMSF Update in Brisbane on 10 March 2016.
Follow this link for further details.
Winner – EOWA Employer of Choice for Women Citation 2009,
2010, 2011 and 2012
Winner – ALB Gold Employer of Choice 2011 and 2012
Finalist – ALB Australasian Law Awards 2008, 2010, 2011 and
2012 (Best Brisbane Firm)
Winner – BRW Client Choice Awards 2009 and 2010 - Best
Australian Law Firm (revenue less than $50m)
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.
To print this article, all you need is to be registered on Mondaq.com.
Click to Login as an existing user or Register so you can print this article.
This newsletter includes links to recent documents relating to superannuation, funds management & financial services.
Some comments from our readers… “The articles are extremely timely and highly applicable” “I often find critical information not available elsewhere” “As in-house counsel, Mondaq’s service is of great value”
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).