RSM Australia

ATO’s announcement on Self-Managed Superannuation Funds borrowing from related parties

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The ATO released a document relating to their view of what is “arms-length” terms when a self-managed superannuation fund (SMSF) borrows from a related party of the fund.  A related party could be a member or company associated with the members of a SMSF.

The release of these guidelines provides details of the ATO’s current view of how these arrangements can be structured. 

SMSF’s have been able to borrow to acquire assets since September 2007. The release of this guidance from the ATO is welcome in that it gives the ATO view of the necessary requirements.

The guidelines provide safe harbours for loan arrangements for the purchase of real property or stock exchange listed shares or units. In providing these guidelines the ATO has expressed the view in relation to the following components of the loan including -

  • minimum interest rate to be charged;
  • fixed or variable interest rate terms;
  • the term of the loan;
  • the maximum loan to value ratio;
  • the security to be provided;
  • the ability for personal guarantees to be provided;
  • frequency of repayments; and
  • the type of agreement required.

     

The ATO has also stated in the guidelines that arrangements outside of the safe harbours may also be acceptable however in the event of the ATO reviewing the arrangements the onus will be on the trustee to “demonstrate this by maintaining evidence that shows their particular arrangement is established and maintained on terms that replicates the terms of a commercial loan is available in the same circumstances.”

SMSF trustees should review any arrangements they have in place before 30 June 2016 to ascertain if there is any impact their current borrowing arrangements and if any remedial action should be taken.