Life Interests Testamentary Trusts

SMSF’s and related party lending

A related party limited recourse borrowing arrangement (LRBA) is a loan between a non-bank (related party) and a SMSF for acquisition of property or listed security to be held in the SMSF.

Trustees of SMSF’s that currently have a LRBA in place for a property or listed security need to ensure that these LRBA’s are in line with the new safe harbour provisions set out by the tax office in relation to:

  • Interest Rate
  • Term of Loan
  • Maximum Loan-to-value ratio
  • Security
  • Nature & frequency of payments
  • Loan agreements

Where a LRBA is not in line with the safe harbour provisions, trustees have the options to:

  • Change the terms so they are consistent with arms – length dealing by 31 January 2017
  • Bring the LRBA to an end by 31 January 2017
  • Refinance to a commercial lender by 31 January 2017

The tax office has advised trustees of SMSF’s have until 31 January 2017 to ensure their LRBA is in line with the safe harbour provisions, including correcting their treatment during the year ended 30 June 2016.

Should you wish to discuss further please feel free to contact Andrew Marshall or Janine Orpwood on 5427 8100 for an initial consultation.

The content within these articles was correct at the time of writing. Please contact us for updated information and advice. 

We provide accounting and wealth management services to clients in Woodend, Gisborne and Macedon Ranges areas within Victoria Australia.

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