ATO Extends Deadline to bring Limited Recourse Borrowing Arrangements (LRBAs) within “Safe Harbours”

The ATO has now extended the 30 June 2016 deadline for SMSF trustees to ensure their related party loans are within the “Safe Harbours” provided by the ATO.

Following the release of Practical Compliance Guidelines 2016/5 (PCG 2016/5) on 6 April 2016 detailing the “Safe Harbours”, SMSF trustees now have until 31 January 2017 to ensure all non-bank LRBAs are consistent with an arm’s length dealing. Where loans are not within the “Safe Harbours”, the income derived from the mortgaged asset may be classed as non-arm’s length income (NALI) and taxed at top marginal rates.

Since the release of PCG 2016/5, the ATO have received several requests for an extension and in considering these has highlighted that many taxpayers may require more time in order to review the terms of their LRBAs and may benefit from further guidance about some aspects of the non-arm’s length income rules.

By 30 September 2016, the ATO will provide further information and illustrative examples to assist SMSF trustees in making decisions about relevant arrangements, however at Morrows our SMSF experts are available now to provide guidance and advice to assist before the new deadline.

To note:

The ATO will not select an SMSF for an income tax review purely because it has an LRBA for the 2014-15 income years and prior provided that:

• The SMSF trustee ensures that any LRBAs to which the fund is a party are:
  • on terms consistent with an arm’s length dealing; or
  • are brought to an end by 31 January 2017; and
• Payments of principal and interest for the year ended 30 June 2016 must be made under the LRBA terms consistent with an arm’s length dealing by 31 January 2017.

Please contact Russell Krupp or Maureen Allan to arrange a meeting to help you understand the critical issues resulting from these new safe harbour rules and what action you need to take now.

Phone 9690 5700 or email rkrupp@morrows.com.au or mallan@morrows.com.au