Limited Recourse Borrowing Arrangements ATO Safe Harbour Terms

Back to News
SMSF & Superannuation

limited recourse borrowing

Limited recourse borrowing arrangements (LRBA) ATO Safe Harbour Terms

(if you or a related entity lent your SMSF funds to purchase an asset under LRBA)

The ATO has taken the view that these arrangements may trigger the non-arm’s length income (NALI) and income from these assets is taxed at 47%.  The income includes the advantaged expense (reduction in interest).

LRBAIn the past, the ATO have been unclear on their view, even at one stage indicating that a loan with terms and conditions including a 0% interest rate would be OK, and those too good to be true terms are now coming unstuck.

The ATO have now issued ATO PCG 2016/5, which specifies the arm’s length terms for these types of LRBAs and have dubbed them the Safe Harbour Terms.

Meeting the Safe Harbour Terms

If SMSF trustees want to shelter they must meet all the conditions to be protected, but if they don’t it doesn’t necessarily mean that NALI will be triggered, it just means that they need to ensure they can clearly demonstrate that they are dealing at arm’s length. To do this they need to collect information from a third party willing to lend, preferably a financial institution.

 

What is a Safe Harbour?

The ATO have provided the following guidance on only two types of assets, real property and listed securities.  No other types of assets will fall within the safe harbour.

LRBA

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

However, this concession is conditional on SMSF trustees ensuring that all existing LRBAs are on terms consistent with the new “Safe Harbour” terms by 30 June 2016, but have up until 1 January 2017 to have all payments squared away, including the principal and interest.  This may make it difficult for some SMSF trustees and the ATO have suggested that they should consider refinancing with a commercial lender, payout the LRBA which may mean that some assets may need to be sold.

Also worth noting, not only for existing LRBA’s but for those considering LRBA’s, the proposed restrictions on Superannuation Thresholds (May 2016 budget) may impact on planning when entering into a long term strategy, such as a LRBA.  In other words it seems pointless, for example, to enter into and LRBA(s) that projects to take balances over those limits given all factors including inflation over the period of the strategy.

The above information is generic and is not advice as each and every situation is unique, therefore please seek specific advice if these provisions apply to your situation.

If you need assistance or advice on a LRBs , please give me a call!

Liz Gibbs

 

 

 

 

LIZ GIBBS – SMSF MANAGER

Optima Partners offers support to all businesses. Whatever your requirements

For more information on how Optima Partners’ services can help your business, contact the team at info@optimapartners.com.au for a consultation.

Latest News

Debt enforcement, payday super headline ATO’s 2025-26 plan
The Australian Taxation Office (ATO) has released its 2025-26 corporate plan, outlining key priorities, challenges...
Official Statement – Phishing attempts
We are aware that some clients have recently been receiving fraudulent emails and phishing attempts...
Effective strategies for debtor management
Debtor management is a key component of long-term business success. Poor debtor management can quickly...
Choosing the Best Client Accounting Software for Your Business
Good client accounting software is essential for business growth and improvement. The right software will...
Key Dates – September 2025
September 21: Lodge and pay August monthly activity statement. September 30: Lodge PAYG withholding payment summary...
SMSF property investment: A comprehensive guide
For many investors, a popular way to invest directly in residential or commercial property is...
Super tax still on the table after first parliament session
The first sitting fortnight of the 48th Federal Parliament shed little light on the fate...
Capital gains tax in Australia: what you need to know before you sell assets
Capital gains tax (CGT) in Australia applies when you sell certain assets. Understanding the consequence...
Key Dates – August 2025
August 11: Q4 (April–June) activity statements lodged electronically – final date for lodgement and payment....
Small business tax deductions in Australia: what you can and can’t claim
The small business sector is the backbone of the Australian economy, representing over 95% of...