W Wen And Co | Chartered Accountants & Business Advisors

Serving Epping, Parramatta, Sydney Hills & Sydney Metropolitan

  • Welcome
  • News and Updates
  • About Us
  • Contact Us
Phone: (02) 8090 2449         
  • Accounting
    • Financial Accounting And Compliance Reporting
    • Cloud Accounting
  • Taxation
    • Capital Gains Tax
    • Fringe Benefits Tax
    • Goods And Services Tax
    • Land Tax
  • Superannuation
  • Audit
    • Trust Audits
    • Audit For Not-For-Profits
    • Audits For AFS Licensees
    • Audit For Self Managed Superannuation Funds
  • Corporate Secretariat
  • Business Basics
    • Capital Gains Tax
    • Fringe Benefits Tax
    • Goods and Services Tax
  • ATO Due Dates

SMSF Safe Harbour Guidelines

smsf-safe-harbour-guidelines-have-been-releasedAnother SMSF Guideline you need to be aware of

Guidelines on the arm’s length terms commonly known as the “safe harbour”  terms have been released by ATO. these guidelines apply when an SMSF acquires an asset under limited recourse borrowing arrangements (LRBAs).

This has been a difficult area for SMSF trustees to contemplate and be free from doubt.

Practical Compliance Guidelines

The practical compliance guidelines (PCG 2016/5) detail interest rates, loan-to-value ratios (LVRs) and various terms that make up the accepted safe harbours for SMSF LRBAs so that arrangements will be seen by the ATO as being consistent with an arm’s length dealing.

Basically, this is to ensure that these arrangements do not give rise to non-arm’s length income (NALI), which is taxed at a high rate (47% in the 2016 year) even if the relevant member is in pension mode.

These announcements are retrospective, so any LRBAs currently in operation need to be considered. There is no grandfathering of existing arrangements.

SMSF advisers and practitioners, and indeed SMSF trustees, should review any LRBAs already entered into that are funded through non-bank sources.

Speed may also be imperative, as the ATO has set a deadline of June 30 to have all such arrangements rendered compliant.

Guideline Parameters

The guidelines provide two safe harbour parameters:

  • Real property (including farms)
  • Collection of stock exchange listed shares or units

Interestingly, there are no safe harbours for other types of asset loans, and these can be the most contentious loans to identify an arm’s length benchmark equivalent.

Interest rates play a key role

For real property, the RBA indicator lending rate for standard variable housing loans for investors in May (5.75% for 2015-16) can be used for LRBAs in existence at the date of the Guideline’s publication.

For 2016-17 and later years, it will be the rate published for the May before the relevant financial year.

Interest rate parameters for the other class, being shares and units, have an added 2% surcharge to the interest rate. This seems in-line with common banking practices.

Loan-to-value (LVR) ratios are also critical. The guidelines prescribe 70% LVR for property, and 50% for shares and managed funds. Further, the guidelines prescribe a 15-year maximum loan term for property, and seven years for shares and managed funds.

Not sure if your SMSF meets the new ATO guideline? Contact the accountants at our Epping office for advice

Share
Tweet
Previous Post
Next Post

Leave a Reply Cancel reply

Your e-mail address will not be published. Required fields are marked *

Recent posts

  • Consumer Compensation (What You Need To Know)
  • Three-Quarter FBT Year Compliance Check-Up
  • Investment And Tax Laws
  • ATO Taxpayer Alerts
  • Agreement With Business Partner (Do You Need One?)

Categories

  • Accounting & Financial Reporting
  • ATO Updates
  • Audit
  • Business Structures
  • Capital Gains Tax
  • Community Activities
  • Digital Currency
  • Employee Leave Entitlements
  • Federal Budget
  • Fringe Benefits Tax
  • Self Managed Super & Retirement
  • Small Business Tax
  • Superannuation
  • Tax Agent
  • Taxation Advice & Planning
    • Company Tax Planning
  • Trusts

Links

  • ABN Lookup
  • Assistant Treasurer's Website
  • ASX
  • Australian Securities and Investments Commission
  • Australian Taxation Office
  • Centrelink
  • Institute of Chartered Accountants Australia
  • NSW Fair Trading
  • NSW Office of State Revenue
  • Treasurer's Website
  • Work Cover NSW

Useful Services

  • CS Lawyers – Legal
  • Mike Perkins | Mortgage Choice

Accounting

Call our chartered accountants now on (02) 9871 3429 to see how we may service your business or personal accounting needs.

Our accountants have extensive experience, including: Preparation of Read More...

Taxation

Call (02) 9871 3429 for taxation advice now

Finding your best business or personal tax outcomes Income Tax Read More...

Superannuation

Our superannuation services include: Preparation of financial statements Read More...

Audit

We also provide services such as preparation of financial reports to comply with the Corporations Act and Australian Accounting Standards.

We specialise in auditing large proprietary companies, clubs and not-for-profit Read More...

Corporate Secretariat

Call (02) 9871 3429 now to discover how our corporate secretariat services can help your company meet ASIC's compliance requirements.

Our Corporate Secretariat services help your company to comply with the Read More...

W Wen and Co. | Suite 7 Level 2, 300 George Street, Sydney NSW 2000 | GPO Box 716 Sydney NSW 2001
(02) 8090 2449 | (02) 9871 3429

Home | Privacy | Disclaimer | Terms | Contact

Website & SEO by Hubsite Builder

Liability limited by
a scheme approved
under Professional
Standards Legislation.