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Why recent Title Search is required ?
When SMSF Auditor conducts audit it is often asked why recent title search is required when Rate Notices, Water bills have name of the owner on it ?
Following are the reasons:
- Title search is accepted form of audit evidence to confirm ownership by the fund under Australian Auditing Standards.
- We have seen similar entities names of related parties appearing on Title Search those have nothing to do with SMSF.
- Title search reveal any charge, caveat, interest registered on it. Which Rate notice or utility invoice can not provide.
- Utility invoice can be held under anyone receiving those services ie. Tenant. Which is the reason Utility invoices can not be taken as audit evidence of ownership of assets.
- When LRBA loan is paid in full, mortgage needs to be discharged and title needs to be transferred to the fund ie. Corporate Trustee or trustees’ names as trustee for the fund. Only Title search can provide this information.
- When professional body, peer review and, ATO conducts our audits, they expect recent title search around the time audit was conducted in our audit file.
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Report SMSF contraventions even if an audit engagement is terminated
If an approved self-managed super fund (SMSF) auditor forms the view that a contravention of the Superannuation Industry (Supervision) Act 1993 (SISA) and/or the accompanying regulations has occurred, may be occurring or may occur, during the course of conducting an audit, section 129 of the SISA requires the auditor to: notify the fund trustees in writing report the contravention to us via an Auditor/actuary contravention report (ACR), provided the reporting criteria is met. Auditors are reminded these reporting obligations exist from the time the auditor is appointed by the SMSF trustees to undertake the annual audit of the fund’s operations, and do not cease simply because an audit engagement is terminated early. This applies whether the engagement is terminated by the trustees or the auditor. Provided the opinion is formed during the course of, or in connection with, the SMSF approved auditor performing their audit functions, section 129 of the SISA will apply. This means if an auditor is appointed to audit an SMSF, and they identify a contravention in the course of undertaking that audit, but their engagement is terminated before they finalise the audit (and give the trustees a report on the fund’s operations), the reporting obligation still exists.
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SPR 2020/D1 determination under paragraph 71(1) (f) for the consultation.
ATO has issued SPR 2020/D1 determination under paragraph 71(1) (f) for the consultation.
I have been in discussions with the ATO for some time now and very glad to see this determination now open for comments
This determination is the Superannuation Industry (Supervision) In-house Asset Determination – Intermediary Limited Recourse Borrowing Arrangement Determination 2020.
This sets guidelines around non-standard SMSF property loans where lender has not provided limited resource.
In recent past when major lenders withdrew from SMSF property lending market, I have seen some structure those have not fit well for in-house asset exception provided under 67A.
Lodging ACR for these structures have been very challenging where client obtained professional financial advice and lawyers were involved.
This determination has provided clarity and more seeds for the thought. Which will certainly open doors for the SMSF to obtain compliant loan, provided they have lender to meet conditions set out.
Whether “normal residential loans with lower interest rates” which some claim, meet the terms, will require more clarification.
Some already set up loans will not be complaint given item 9 of determination reads “the documentation referred to in paragraph (8) is disclosed to the lender in connection to the borrowing referred to in paragraph (5).
I have seen trustees providing declaration to the lender that “this loan is not for the superannuation fund”.
Due date to provide comments to the ATO is 13 March 2020.
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Appoint an SMSF auditor
You must appoint an approved SMSF auditor to audit your fund each year, not later than 45 days before you need to lodge your SMSF annual return. The auditor examines your fund’s financial statements and assesses your fund’s compliance with super law.
Watch:
Your SMSF auditor must be:
- registered with ASICExternal Link – if they are, they will have an SMSF auditor number, which you need to provide on your annual return
- independent – they should not audit a fund in which they hold any financial interest, or where they have a close personal or business relationship with members or trustees.
An audit is required even if no contributions or payments are made in the financial year.
Before an SMSF auditor can start an audit, you or your professional adviser need to give them information about your accounts and transactions for the previous financial year. Any additional information requested by your SMSF auditor, in writing must be provided within 14 days.
Your auditor should advise you of any breaches of the rules. You, as trustee, should rectify any contravention as soon as possible.
Your auditor is also required to report certain contraventions to us. Even if you terminated an auditor engagement or the auditor does not finish the audit, if they have identified a reportable contravention, their obligation to report to us remains.
For more information click here for the Australian Taxation Office web portal
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Self-managed superannuation fund annual return and instructions 2017
You can download the Self-managed superannuation fund annual return 2017(NAT 71226).
This instruction guide is not available in print or as a downloadable PDF document.
These instructions will help you complete the Self-managed superannuation fund annual return 2017. However, they are not a guide to income tax or superannuation law. Seek help from us or a recognised tax adviser if these instructions do not fully cover your circumstances.
About the SMSF annual return
Who needs to complete an SMSF annual return
Your super fund must lodge a Self-managed superannuation fund annual return 2017 if it was:
- a self-managed superannuation fund on 30 June 2017, or
- a self-managed superannuation fund that was wound-up during 2016–17.
Only self-managed superannuation funds (SMSFs) can use the Self-managed superannuation fund annual return 2017. Super funds that are not SMSFs at the end of 2016–17 must use the Fund income tax return 2017 and, where required, a separate Super member contributions statement.
Your SMSF must lodge an SMSF annual return even if it does not have a tax liability.
How to use these SMSF annual return instructions
Work through these SMSF annual return instructions from the start (Section A) to the finish (Section K).
- You must answer all mandatory questions
- You must answer all questions which apply to your SMSF.
Leave the answer box blank for all other questions. If you leave the answer box blank, you will have specified a zero amount or that the question is not applicable to you.
Read the instructions for each question to find out:
- whether you need to complete the question
- the information you must provide.
If a question does not apply to your SMSF, move on to the next question.
Sections of the SMSF annual return
The SMSF annual return is more than an income tax return. It has 11 sections, each described below.
You must complete at least six sections (A, C, D, (F and/or G), H and K). Complete the other sections only if they apply to your SMSF.
A: Fund information: Complete this section for the SMSF; provide general and identifying information about the SMSF and its auditor.
B: Income: Complete this section if the SMSF has assessable income to report.
C: Deductions and non-deductible expenses: Complete this section for the SMSF; report all the SMSF’s expenses, both deductible and non-deductible.
D: Income tax calculation statement: Complete this section for the SMSF to calculate the amount due or refundable to the SMSF.
E: Losses: Complete this section if the SMSF has tax or capital losses to carry forward to later income years.
Sections F and G: Member information and supplementary member information:Complete either Section F or Section G (or both) for the SMSF. Report contributions and account balances for each of the SMSF’s members:
- in Section F, for those who had an account on 30 June 2017
- in Section G, for those who left the SMSF during 2016–17.
H: Assets and liabilities: Complete this section for the SMSF. Report all of the SMSF’s assets and liabilities at 30 June 2017.
I: Taxation of financial arrangements Complete this section if the taxation of financial arrangements provisions apply to the SMSF.
J: Other information Complete this section if the SMSF has made or is making a family trust election or an interposed entity election.
K: Declarations: Complete this section for the SMSF. Declare that you have met your obligations in relation to the SMSF annual return.
For more information click below:
https://www.ato.gov.au/Forms/Self-managed-superannuation-fund-annual-return-instructions-2017/
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Self-managed superannuation fund independent auditor’s report 30 June 2017
You should use this report if you:
- are an approved self-managed super fund (SMSF) auditor
- have been appointed by a trustee of an SMSF to give a report on the operation of that fund for an income year.
An approved SMSF auditor is an auditor who is registered with the Australian Securities & Investments Commission (ASIC). ASIC issues each approved SMSF auditor with an SMSF auditor number (SAN). You must include your SAN when completing this report.
Next step:
- A downloadable version of this report is available Self-managed superannuation fund independent auditor’s report (NAT 11466, DOCX)
The report available at the link above is effective for reporting periods starting on or after 1 July 2016. You may use this report for audits completed for earlier periods. However, you must take care to comply with the auditing standards and legislation that applied to that earlier period.
This report will only be reissued when changes are made.
Independence
SMSF auditors must comply with prescribed independence requirements as set out in the Accounting Professional and Ethical Standards Board’s pronouncement, APES 110 Code of Ethics for Professional Accountants.
Some threats to independence can only be eliminated or reduced to an acceptable level by declining or removing yourself from the audit engagement – this includes an engagement to audit the fund where you:
- are a trustee or director of a corporate trustee or a member of the fund
- are a relative or close associate of a trustee or director of a corporate trustee or a member of the fund
- have prepared the accounts and the statements for the fund being audited (if you are a sole practitioner, this includes instances where an employee has prepared the accounts and statements)
- provide advice (such as financial or investment) to the fund being audited.
The audit report now includes a specific commitment that the auditor has complied with auditor independence requirements prescribed by the Superannuation Industry (Supervision) Regulations 1994 (SISR).
Further guidance on auditor independence and adherence to APES 110 is available in the Joint Accounting Bodies publication Independence Guide as well as in the Auditing and Assurance Standards Board (AUASB) Guidance Statement GS 009 Auditing Self-Managed Superannuation Funds on their website auasb.gov.auExternal Link
Last modified: 26 Jun 2017QC 17604
For more details click on following ATO link:
https://www.ato.gov.au/Forms/SMSF-independent-auditor-s-report/
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Practical Compliance Guidelines LRBA 2016/15
Income tax - arm's length terms for Limited Recourse Borrowing Arrangements established by self managed superannuation funds
What this Guideline is about
1. When a Self-Managed Superannuation Fund (SMSF) acquires an asset under a Limited Recourse Borrowing Arrangement (LRBA), the non-arm’s length income (NALI) provisions in section 295-550 of the Income Tax Assessment Act 1997 (ITAA 1997) may apply to ordinary or statutory income generated from the asset if the terms of the LRBA are not consistent with an arm’s length dealing.
2. This Guideline sets out the ‘Safe Harbour’ terms on which SMSF trustees may structure their LRBAs consistent with an arm’s length dealing. That is, for income tax compliance purposes, the Commissioner accepts that an LRBA structured in accordance with this Guideline is consistent with an arm’s length dealing and that the NALI provisions do not apply purely because of the terms of the borrowing arrangement.
3. As noted under the Date of effect, this Guideline applies where the requirements of section 67A (or former subsection 67(4A) if applicable) of the Superannuation Industry (Supervision) Act 1993 (SISA) are met at all times, and are not intended to override or replace those or any other SISA requirements that apply.
4. If SMSF trustees have entered into an arrangement which does not meet all of the ‘Safe Harbour’ terms set out in this Guideline, whilst the trustees are unable to be assured that the Commissioner will accept the arrangement to be consistent with an arms’ length dealing, it does not mean that the arrangement is deemed not to be on arms’ length terms. It merely means that there is no certainty provided under this Guideline. The trustees will need to be able to otherwise demonstrate that the arrangement was entered into and maintained on terms consistent with an arms’ length dealing. One example of how a trustee may demonstrate this is by maintaining evidence that shows their particular arrangement is established and maintained on terms that replicate the terms of a commercial loan that is available in the same circumstances.
Date of effect
5. This Guideline applies to SMSF trustees who have established LRBAs that meet the requirements of section 67A (or former subsection 67(4A) if applicable) of the SISA, regardless of whether the arrangement commenced before or after the date of publication of this Guideline.
Safe Harbour 1: The asset acquired is real property
6. Safe Harbour 1 applies when an SMSF uses an LRBA to acquire real property or to refinance a borrowing used to acquire real property, whether that property is residential or commercial premises (including property used for primary production activities).
7. The ATO accepts that an LRBA used to acquire real property, or to refinance a borrowing used to acquire real property, is consistent with an arm’s length dealing if the terms of the borrowing are established and maintained throughout the LRBA as set out below.
| Interest Rate | Reserve Bank of Australia Indicator Lending Rates for banks providing standard variable housing loans for investors. Applicable rates:
|
| Fixed / variable | Interest rate may be variable or fixed
The fixed rate is the rate published for May (the rate for the May before the relevant financial year). The 2015-16 rate of 5.75% may be used for LRBAs in existence on publication of these guidelines, if the total period for which the interest rate is fixed does not exceed 5 years (see ‘Term of the loan’ below) |
| 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. For an LRBA in existence on publication of these guidelines, the trustees may adopt the rate of 5.75% as their fixed rate, provided that the total fixed-rate period does not exceed 5 years. The interest rate must convert to a variable interest rate loan at the end of the nominated period. The total loan cannot exceed 15 years. |
| Loan to Market Value Ratio (LVR) | Maximum 70% LVR for both commercial and residential propertyIf more than one loan is taken out to acquire (or refinance) the asset, the total amount of all those loans must not exceed 70% LVR. The market value of the asset is to be established when the loan (original or re-financing) is entered into. For an LRBA in existence on publication of these guidelines, the trustees may use the market value of the asset at 1 July 2015. |
| Security | A registered mortgage over the property is required |
| Personal guarantee | Not required |
| Nature & frequency of repayments | Each repayment is of both principal and interestRepayments are monthly |
| Loan agreement | A written and executed loan agreement is required |
Safe Harbour 2: The asset acquired is a collection of stock exchange listed shares or units
8. Safe Harbour 2 applies when an SMSF uses an LRBA to acquire a collection of shares in a stock exchange listed company or to acquire units in a stock exchange listed unit trust. Safe Harbour 2 also applies when an SMSF uses an LRBA to refinance a borrowing used to acquire such a collection.
9. The ATO accepts that an LRBA used to acquire or to refinance a borrowing used to acquire stock exchange listed shares or stock exchange listed units in a unit trust is consistent with an arm’s length dealing if the terms of the borrowing are established and maintained throughout the LRBA, as set out below.
| Interest Rate | Reserve Bank of Australia Indicator Lending Rates for banks providing standard variable housing loans for investors plus 2%. Applicable rates:
|
| Fixed / variable | Interest rate may be variable or fixed
The 2015-16 rate of 7.75% may be used for LRBAs in existence on publication of these guidelines, if the total period for which the interest rate is fixed does not exceed 3 years (see ‘Term of the loan’ below) |
| Term of loan | Variable interest rate loan (original) – 7 year maximum loan termVariable 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% LVRIf more than one loan is taken out to acquire (or refinance) the collection of assets, the total amount of all those loans must not exceed 50% LVR. The market value of the collection of assets is to be established when the loan (original or re-financing) is entered into. For an LRBA in existence on publication of these guidelines, the trustees may use the market value of the asset at 1 July 2015. |
| 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 interestRepayments are monthly |
| Loan agreement | A written and executed loan agreement is required |
More information
- ·
- Self Managed Superannuation Funds Ruling SMSFR 2012/1 Self Managed Superannuation Funds: limited recourse borrowing arrangements – application of key concepts
- ·
- Limited Recourse borrowing arrangements – questions and answers
- ·
- Legislative Determinations SPR 2014/1 Self Managed Superannuation Funds (Limited Recourse Borrowing Arrangements – In-house Asset Exclusion) Determination 2014
- ·
- SISA 1993 67A and SISA 1993 67B of the SISA
- ·
- ATO Interpretative Decision ATO ID 2015/27 Income tax: non-arm’s length income – related party non-commercial limited recourse borrowing arrangement to acquire listed shares
- ·
- ATO Interpretative Decision ATO ID 2015/28 Income tax: non-arm’s length income – related party non-commercial limited recourse borrowing arrangement to acquire real property
Background and Additional Information
11. As set out in ATO interpretative decisions, ATO ID 2015/27 and ATO ID 2015/28, the ATO takes the view that the NALI provisions in the ITAA 1997 can apply when an SMSF trustee undertakes LRBAs that are established or maintained on terms that are not consistent with an arm’s length dealing.
12. If we are asked to state formally (for example, in a private ruling or in litigation) whether a particular SMSF’s LRBA gives rise to NALI for any income year, our approach will be consistent with ATO ID 2015/27 and ATO ID 2015/28.
ATO’s compliance approach for LRBAs established before 30 June 2016
13. The ATO recognises the effects of the NALI provisions, and the importance of preserving assets held by an SMSF. Given this, we will not select an SMSF for an income tax review for the 2014-15 year or earlier years purely because the SMSF has entered into an LRBA. However, this is conditional on the SMSF trustee ensuring that any LRBAs that their fund has is on terms consistent with an arm’s length dealing by 30 June 2016 or, alternatively, is brought to an end by 30 June 2016.
14. In addition, payments of principal and interest for the year ended 30 June 2016 must be made under LRBA terms consistent with an arm’s length dealing. SMSF trustees who are concerned about their ability to make the required payments on commercial terms before 30 June 2016 can contact the ATO to discuss their particular circumstances. In the first instance, taxpayers can write to us, outlining their particular circumstances, at the following address:
PO Box 3100
Penrith NSW 2740
15. In other words, SMSF trustees have an opportunity to review the terms of their funds’ LRBAs before 30 June 2016. The terms of their LRBAs will not be subject to any further compliance action for the 2014-15 income years (or before) if, by the 30 June 2016:
- (i)
- the LRBA is on terms that are consistent with an arm’s length dealing,
- or
- (ii)
- the LRBA is brought to an end, and the payments of principal and interest made are made under LRBA terms consistent with an arm’s length dealing.
16. Furthermore, SMSF trustees who satisfy these conditions, and apply this Guideline in good faith to revise the terms of their existing LRBAs before 30 June 2016, can be assured that the terms of their LRBA will not be subject to any further compliance action by the ATO for the 2014-15 years and prior.
17. The following examples illustrate how the Safe Harbours apply in conjunction with the opportunity for SMSF trustees to review and revise the terms of their LRBAs before 30 June 2016.
Example 1 – real property
18. A complying SMSF borrowed money under an LRBA on terms consistent with section 67A of the SISA. It used the funds to to acquire commercial property valued at $500,000 on 1 July 2011.
- ·
- The borrower is the SMSF trustee.
- ·
- The lender is an SMSF member’s father (a related party).
- ·
- A holding trust has been established, and the holding trust trustee is the legal owner of the property until the borrowing is repaid.
19. The loan has the following features:
- ·
- the total amount borrowed is $500,000
- ·
- the SMSF met all the costs associated with purchasing the property from existing fund assets
- ·
- the loan is interest free
- ·
- the principal is repayable at the end of the term of the loan, but may be repaid earlier if the SMSF chooses to do so
- ·
- the term of the loan is 25 years
- ·
- the lender’s recourse against the SMSF is limited to the rights relating to the property held in the holding trust, and
- ·
- the loan agreement is in writing.
20. We do not consider that this LRBA has been established or maintained on arm’s length terms. This is consistent with our view in ATO interpretative decisions, ATO ID 2015/27 and ATO ID 2015/28. The income earned from the property, which is rented to an unrelated party, gives rise to NALI.
21. At 1 July 2015, the property was valued at $643,000.
22. The SMSF has not repaid any of the principal since the loan commenced.
23. To avoid having to report NALI for the 2015-16 year (and prior years) the Fund has a number of options.
Option 1 – Alter the terms of the loan to meet guidelines
24. The SMSF and the lender could alter the terms of the loan arrangement to meet Safe Harbour 1, for real property (see paragraph 7 of this guideline).
25. To bring the terms of the loan into line with Safe Harbour 1, the trustees of the SMSF must ensure that:
- ·
- The 70% LVR is met (in this case, the value of the property at 1 July 2015 may be used). Based on a property valuation of $643,000 at 1 July 2015, the maximum the SMSF can borrow is $450,100. The SMSF needs to repay $49,900 of principal as soon as practical before 30 June 2016.
- ·
- The loan term cannot exceed 11 years from 1 July 2015. The SMSF must recognise that the loan commenced 4 years earlier. An additional 11 years would not exceed the maximum 15 year term.
- ·
- The SMSF can use a variable interest rate. Alternatively, it can alter the terms of the loan to use a fixed rate of interest for a period that ensures the total period for which the rate of interest is fixed does not exceed 5 years. The loan must convert to a variable interest rate loan at the end of the nominated period.
- ·
- The interest rate of 5.75% p.a. applies from 1 July 2015 to 30 June 2016. The SMSF trustee must determine and pay the appropriate amount of principal and interest payable for the year. This calculation must take the opening balance of $500,000, the remaining term of 11 years, and the timing of the $49,900 capital repayment, into account.
- ·
- After 1 July 2016, the new LRBA must continue under terms complying with the ATO’s guidelines relating to real property at all times. For example, the SMSF must ensure that it updates the interest rate used for the loan on 1 July each year (if variable) or as appropriate (if fixed), and make monthly principal and interest repayments accordingly.
Option 2 – Refinance through a commercial lender
26. The fund could refinance the LRBA with a commercial lender, extinguish the original arrangement and pay the associated costs.
27. While the original loan remains in place during the 2015-16 income year, the SMSF must ensure that the terms of the loan are consistent with an arm’s length dealing, and relevant amounts of principal and interest are paid to the original lender.
28. The SMSF may choose to apply the terms set out under Safe Harbour 1 to calculate the amounts of principal and interest to be paid to the original lender for the relevant part of the 2015-16 year.
Option 3 – Pay out the LRBA
29. The SMSF may decide to repay the loan to the related party, and bring the LRBA to an end before 30 June 2016.
30. While the original loan remains in place during the 2015-16 income year, the SMSF must ensure that the terms of the loan are consistent with an arm’s length dealing, and the relevant amounts of principal and interest are paid to the original lender.
31. The SMSF may choose to apply the terms set out under Safe Harbour 1 to calculate the amounts of principal and interest to be paid to the original lender for the relevant part of the 2015-16 year.
Example 2 – collection of listed shares
32. A complying SMSF borrowed money under an LRBA on terms consistent with section 67A of the SISA. It used the funds to acquire a collection of stock exchange listed shares valued at $100,000 on 1 July 2011.
- ·
- The borrower is the SMSF trustee.
- ·
- The lender is an SMSF member (a related party).
- ·
- A holding trust has been established, and the holding trust trustee is the legal owner of the collection of shares until the borrowing is repaid.
33. The loan has the following features:
- ·
- the total amount borrowed is $80,000
- ·
- the SMSF met all the costs associated with purchasing the shares, and provided $20,000 from existing fund assets towards the purchase price
- ·
- interest was payable, but only at a fixed rate of 2% p.a. for the entire term of the loan
- ·
- the principal is repayable at the end of the term of the loan, but may be repaid earlier if the SMSF chooses to do so
- ·
- the term of the loan is for 10 years
- ·
- the lender’s recourse against the SMSF is limited to the rights relating to the collection of shares held in the Holding Trust, and
- ·
- the loan agreement is in writing.
34. We do not consider that this LRBA has been established or maintained on arm’s length terms. This is consistent with our view in ATO interpretative decisions: ATO ID 2015/27 and ATO ID 2015/28. The dividend income earned from these shares gives rise to NALI.
35. As at 1 July 2015, the parcel of shares was valued at $120,000.
36. The SMSF has not repaid any of the principal since the loan commenced.
37. To avoid having to report NALI for the 2015-16 year (and prior years) the Fund has a number of options.
Option 1 – Alter the terms of the loan to meet guidelines
38. The SMSF and the related party could alter the terms of the loan to comply with Safe Harbour 2, for a collection of stock exchange listed shares (see paragraph 8 of this guideline).
39. To bring the terms of the loan into line with Safe Harbour 2, the trustees of the SMFS must ensure that:
- ·
- The 50% LVR is met (in this case the value of the collection of shares at 1 July 2015 may be used). Based on a market valuation of $120,000 at 1 July 2015, the maximum the SMSF can borrow is $60,000. The SMSF needs to repay $20,000 of principal as soon as practical before 30 June 2016.
- ·
- The loan term cannot exceed 3 years from 1 July 2015. The SMSF must recognise that the loan commenced four years earlier. An additional three years would not exceed the maximum 7 year term.
- ·
- The interest rate must be a variable interest rate, as the loan has already been fixed for 4 years from when it commenced (that is, 1 July 2011).
- ·
- The interest rate of 7.75% p.a. applies from 1 July 2015 to 30 June 2016. The related party and the SMSF must determine the appropriate amount of principal and interest payable for the year. This calculation must take the opening balance of $80,000, the remaining term of three years, the timing of the $20,000 capital repayment, and the interest already paid into account.
- ·
- After 1 July 2016, the new LRBA must continue under terms complying with the ATO’s guidelines relating to listed shares at all times. For example, the SMSF must ensure that it updates the interest rate used for the loan on 1 July each year, and make monthly principal and interest repayments accordingly.
Option 2 – Refinance through a commercial lender
40. The SMSF could refinance the LRBA with a commercial lender, extinguish the original arrangement and pay the associated costs.
41. While the original loan remains in place during the 2015-16 income year, the SMSF must ensure that the terms of the loan are consistent with an arm’s length dealing, and that principal and interest amounts are paid to the original lender for the relevant parts of the 2015-16 year.
42. The SMSF may choose to apply the terms set out in Safe Harbour 2 to calculate the amounts of principal and interest to be paid to the original lender for the relevant part of the 2015-16 year.
Option 3 – Payout the LRBA
43. The SMSF may decide to repay the loan to the related party, and bring the LRBA to an end before 30 June 2016.
44. While the original loan remains in place during the 2015-16 income year, the SMSF must ensure that the terms of the loan are consistent with an arm’s length dealing, and the relevant amounts of principal and interest for that period are paid to the original lender.
45. The SMSF may choose to apply the terms set out in Safe Harbour 2 to calculate the amounts of principal and interest to be paid to the original lender for the relevant part of the 2015-16 year.
Commissioner of Taxation
6 April 2016
For More information on ATO website click here.
Related Rulings/Determinations:
SMSFR 2012/1
Legislative References: ITAA 1997ITAA 1997 295-550SISA 1993SISA 1993 67ASISA 1993 67(4A)SISA 1993 67B
Other References:
ATO ID 2015/27
ATO ID 2015/28
SPR 2014/1
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