Changes to the rules around how self-managed super funds (SMSFs) can borrow from related parties mean many self-managed super fund trustees must now reconsider whether their existing lending arrangements comply with these new requirements.
The ATO has released Practical Compliance Guidelines (PCG 2016/5) detailing interest rates, LVR ratios and other terms that constitute “Safe Harbours” for limited recourse borrowing arrangements (LRBAs).
Where related loans are not within the safe harbour guidelines the income derived from the mortgaged asset may be classed as non arm’s-length income (NALI) and taxed at top marginal rates. With only a few weeks left until the 30 June 2016 deadline urgent action is required.
Come and hear from our SMSF Specialists as they explain the 3 critical issues and what action you need to take now.
1. Payment of interest and principal
- The total time of the loan cannot be more than 15 years (7 years for equities or listed units). The interest at the prescribed rate needs to be brought up to date for the 12 months ending 30th June 2016.
- The balance of any outstanding capital will have to be amortised over the remaining life of the loan to a maximum of 15 years (7 years for equities or listed units) from commencement.
- The catch up amounts involved can be substantial.
2. The loan will have to be reduced to 70% Loan Valuation Ratio for real property (50% for shares)
3. The loan must be secured by a registered mortgage for real property (registered charge/mortgage or similar security for shares)
Register now for our complimentary seminar to be held on:
Wednesday 15 June 2016
5.15pm for a 5.30pm start.
Seminar will conclude by 6.30pm
Venue: Morrows Board Room
Level 13, Freshwater Place
2 Southbank Boulevard
Southbank VIC 3006
Morrows invites you to stay for an informal discussion and refreshments.
Please feel free to bring a colleague or friend and register your attendance by Monday 13 June 2016.
Please also include any special dietary requirements in the comments field.