<img height="1" width="1" style="display:none" src="https://www.facebook.com/tr?id=264357774380001&amp;ev=PageView&amp;noscript=1">

Ensure your SMSF Related Party Loans are at Arm’s Length

22.04.2016 by Neville Hughes

 We’re already preparing for and predicting some changes to be announced to the treatment of superannuation tax concessions in this year's budget.  I’ll be hosting a luncheon next month to discuss what the budget might mean for small and medium businesses in Central Queensland and beyond.

Add to that the fact that the Australian Tax Office (ATO) has just released two new rulings in relation to Related Party Loans and it quickly becomes evident that it’s time to review and plan your Self Managed Super Funds (SMSF) to ensure you will be compliant.

So, what can you be doing right now with your SMSF Related Party Loans to pre-empt budget announcements and adapt to ensure you are working within the framework of the ATO’s new changes?

The main changes

If you are a Trustee or Director of a Corporate Trustee of a SMSF that has borrowed money from a ‘Related Party’ under a ‘Limited Recourse Borrowing Arrangement’ (LRBA) it is essential for you to ensure that these loans are put on an ‘Arms Length Basis’ by 30 June 2016. If not the penalties are significant.

If you’re not quite sure what ‘at arm’s length’ means, contact me via email to set up a time to discuss your options or continue reading.

Are you at arm’s length?

In determining whether a Related Party Loan is at Arms Length you must consider the a few important factors as follows:

  • Interest rate charged
  • Loan to value ratio (LVR)
  • Loan term
  • Repayment frequency
  • Security
  • Guarantees
  • Formal loan agreement

Collect your evidence now

I would strongly recommend that you gather your supporting evidence (ideally from a bank) to show that the Related Party Loan is on an Arms Length Basis as soon as possible.

But wait, there’s more…

When I write ‘by the 30 June 2016’ this means that the SMSF must be compliant in all of these areas by 30 June 2016. That’s right, that means for the full financial year.

This is especially relevant to interest rate and repayments and it may mean that catch-up payments maybe are required by 30 June 2016 to ensure your SMSF.

The definition of a Related Party is quite wide and includes a member or a related entity such as a Company or Trust.

If your SMSF has a Related Party Loan and you would like assistance to ensure it’s on an Arms Length basis by 30 June 2016 call us soon.

Do not waste any time, because as of this week you have around two months to get it right.

Put your email in the box below and press submit to bet kept up to date with my latest news

Topics Superannuation

Subscribe to Email Updates

Subscribe To Our Blog
 
 
 
 
 

Recent Posts