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ARTICLE · 31 JANUARY 2017

Urgent action required - safe harbour rules for SMSFs borrowing from related parties (LRBAs)

Cooper Grace Ward
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To comply with the PCG 2016/5 safe harbour guidelines, ensure that the related party loans are on arm's length terms.

AustraliaFinance and Banking
Scott Hay-Bartlem
Scott Hay-Bartlem
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The deadline for dealing with related party loans to SMSFs for LRBAs is fast approaching. In order to comply with the safe harbour guidelines outlined in PCG 2016/5, you must ensure the related party loans are on arm's length terms before 31 January 2017.

For related party loans to be on arm's length terms, the loan must, before 31 January 2017, be:

  • on terms consistent with either:
    • the safe harbour guidelines published by the ATO in PCG 2016/5; or
    • a loan from an arm's length lender (which can be supported by independent third party evidence); and
  • supported by a registered mortgage or security over the acquired asset.

If you have not yet reviewed or updated your clients' related party loans to ensure they comply with PCG 2016/5, you should take urgent action to ensure the non-arm's length income rules will not apply to the SMSFs because of the loan terms.

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