Safe Harbour Rules for SMSF with Limited Recourse Borrowing Arrangement
If you have a Self-Managed Superannuation Fund with Limited Recourse Borrowing Arrangements (LRBAs) with a related party , the ATO has released guidelines in relation to establishing acceptable terms of the borrowings. These guidelines are referred to as the Safe Harbour Rules and they are set out in PCG 2016/5 which was released on 7 April 2016. Trustees were previously advised that they have until 30 June 2016 to ensure compliance, however the ATO have extended this deadline to the 31st January 2017. Making sure that your LRBA terms are compliant is important, as a breach of these rules could mean that the income from the assets to which there is a LRBA in place would be deemed Non Arms-Length Income and could potentially be taxed at the highest marginal tax rate.
Safe Harbour 1: Real Property Asset
[fusion_builder_container hundred_percent=”yes” overflow=”visible”][fusion_builder_row][fusion_builder_column type=”1_1″ background_position=”left top” background_color=”” border_size=”” border_color=”” border_style=”solid” spacing=”yes” background_image=”” background_repeat=”no-repeat” padding=”” margin_top=”0px” margin_bottom=”0px” class=”” id=”” animation_type=”” animation_speed=”0.3″ animation_direction=”left” hide_on_mobile=”no” center_content=”no” min_height=”none”]
| Interest Rate | Reserve Bank of Australia Indicator Lending Rates for banks providing standard variable housing loans for investors. Applicable rates: For the 2015-16 year, the rate is 5.75% |
| Fixed / variable | Interest rate may be variable or fixed |
| Term of the loan | Variable interest rate loan (original) – 15 year maximum loan term (for both residential and commercial). Variable interest rate loan (re-financing) – maximum loan term is 15 years less the duration(s) of any previous loan(s) relating to the asset (for both residential and commercial). Fixed interest rate loan - a new LRBA commencing after publication of these guidelines may involve a loan with a fixed interest rate set at the beginning of the arrangement. The rate may be fixed for a maximum period of 5 years and must convert to a variable interest rate loan at the end of the nominated period. The total loan term cannot exceed 15 years. |
| Loan to Market Value Ratio (LVR) | Maximum 70% LVR for both commercial and residential property |
| Security | A registered mortgage over the property is required |
| Personal guarantee | Not required |
| Nature & frequency of repayments | Each repayment is of both principal and interest Repayments are monthly |
| Loan agreement | A written and executed loan agreement is required |
Safe Harbour 2: Collection of Stock Exchange Listed Shares or Units
| Interest Rate | Reserve Bank of Australia Indicator Lending Rates for banks providing standard variable housing loans for investors plus 2%. Applicable rates: For the 2015-16 year, the interest rate is 7.75% |
| Fixed / variable | Interest rate may be variable or fixed |
| Term of loan | Variable interest rate loan (original) – 7 year maximum loan term Variable interest rate loan (re-financing) - maximum loan term is 7 years less the duration(s) of any previous loan(s) relating to the collection of assets. Fixed interest rate loan - a new LRBA commencing after publication of these guidelines may involve a loan that has a fixed interest rate set at the beginning of the arrangement. The rate may be fixed up to for a maximum of 3 years, and must convert to a variable interest rate loan at the end of the nominated period. The total loan term cannot exceed 7 years. |
| LVR | Maximum 50% LVR |
| Security | A registered charge/mortgage or similar security (that provides security for loans for such assets) |
| Personal guarantee | Not required |
| Nature & frequency of repayments | Each repayment is of both principal and interest Repayments are monthly |
| Loan agreement | A written and executed loan agreement is required |
Contributed by: Helene Kosasie[/fusion_builder_column][/fusion_builder_row][/fusion_builder_container]
