In an earlier article this year we mentioned the ATO’s
Practice Compliance Guideline 2016/5 on what constitutes arm’s length borrowing
terms for limited recourse borrowing arrangements (LRBA).
PCG2016/5 sets out the “Safe Harbour” terms on which SMSF
trustees may structure their LRBA’s consistent with an arm’s length dealing.
For existing LRBA’s with related parties, PCG2016/5 states
that the ATO will not select an SMSF for income tax review for the 2014-15 year
or earlier years in certain circumstances provided that the SMSF entered into
or amended its LRBA’s consistent with an arm’s length dealing by 30 June 2016.
However, since the release of PCG2016/5 the ATO has
determined that many taxpayers may require more time in order to review the
terms of their LRBA’s. The ATO has
advertised that it will not select an SMSF for income tax review purely because
it has an LRBA for the 2014-15 income year and prior years, provided that the
SMSF trustee ensures that any LRBA’s their fund has is on commercial terms, or
is alternatively brought to an end by 31 January 2017.
It is anticipated that by September 2016 the ATO will
provide further information and illustrative examples to assist SMSF trustees
to make decisions about their LRBA arrangements.
If you require assistance in establishing an LRBA or
amending your existing LRBA’s so that they are on arm’s length commercial terms
by 31 January 2017, please contact Andrew Bini.
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