Newsletter
July 2016 Newsletter
SMSF borrowing arm's-length terms deadline extended
The ATO has extended until 31 January 2017 the deadline for trustees of self managed super funds (SMSFs) to ensure that any related-party limited recourse borrowing arrangements (LRBAs) are on terms consistent with an arm’s-length dealing. The ATO had previously announced a grace period whereby it would not select an SMSF for review for the 2014–2015 year or earlier years, provided that arm’s-length terms for LRBAs were implemented by 30 June 2016 (or non-compliant LRBAs were brought to an end before that date).
The deadline extension to 31 January 2017 follows the ATO’s release of Practical Compliance Guideline PCG 2016/5, which sets out “safe harbour” terms for LRBAs. If an LRBA is structured in accordance with PCG 2016/5, the ATO will accept that the LRBA is consistent with an arm’s-length dealing and the non-arm’s length income (NALI) rules (47% tax) will not apply.
TIP: The ATO requires arm’s-length payments of principal and interest for the year ended 30 June 2016 to be made under LRBA terms consistent with an arm’s-length dealing by 31 January 2017.