The ATO has thrown a lifeline to SMSF trustees in the rush to
get limited recourse borrowing arrangements (LRBAs) on commercial
terms by the end of this 2016 financial year.
Previously, the ATO released Practical Compliance Guideline
2016/5 (PCG 2016/5), which required SMSF trustees to review all of
their related party loan arrangements for LRBAs to ensure they were
on arm's length terms by 30 June 2016.
Failure to do so could result in income from the LRBA being
assessed as non-arm's length income (NALI).
However, the ATO has extended the deadline to 31 January 2017 to
give trustees more time to comply with the new guidelines.
This move is welcome given the current uncertainty regarding
superannuation contribution caps, which were one weapon available
to address some issues with related party loan arrangements.
This means that, by 31 January 2017, trustees of SMSFs with a
LRBA from a related party lender must:
pay principal and interest consistent with an arm's length
dealing for the year ended 30 June 2016 and the period up to 31
January 2017; and
reduce the principal of all loans to 70% or less of the
Alternatively, SMSF trustees must bring the LRBA to an end by 31
The ATO plans to release further information and examples by the
end of September in relation to the Safe Harbour Rules contained in
While this extension creates extra breathing room for SMSF
trustees, we recommend that all LRBAs are reviewed as soon as
possible to ensure that they comply with the ATO's
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ATO has released 2 draft fact sheets relating to the 2010 amendments to corporate law and tax in relation to dividends.
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