Extension given to comply with the LRBA safe harbour provisions
The ATO has announced that the date for making sure LRBA related party loans comply with the new safe harbour provisions has been extended to 31st January 2017.
SMSF trustees who have a related party loan under a LRBA structure and want to rectify the current terms of the loan to the new safe harbour provisions and make any necessary payments of interest and principal for the 2015/2016 financial year have until the 31st January 2017 to do this.
Previously, SMSF Trustees had until 30th June 2016 to make sure any related party loan under a LRBA structure comply with the safe harbour provisions.
This extension has been put in place to
• Make sure SMSF Trustees ensure their related party loan are on arm’s length terms
• Give time to repay the loan or
• Give time to refinance the loan with a commercial lender.
The ATO said they would provide further examples and information to assist SMSF trustees and advisers to help them make decisions about the arrangements they need to make by 30th September 2016. We will keep an eye on this space and will communicate this when is becomes available.
For more information or guidance please contact;
Martin van der Saag
Director
T: 02 9984 7774
E: martinv@nac.com.au
Cayle Petritsch
SMSF Specialist Advisor
T: 02 9984 7774
E: caylep@nac.com.au
“The extension provides SMSF trustees with valuable time to bring existing LRBAs into line with ATO safe harbour requirements.”
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Marius Fourie - Director & Business Advisor
As Director and Business Advisor, Marius uses his accounting expertise and empathetic skills to work directly with business owners and help them feel at ease with their finances.
Marius saw a common need in clients that just wasn’t being met by accounting providers.
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Business owners just don’t have time to compare different accounting firms to see which one has the best packages with the best inclusions (many of which they would pay for but never use).
Key Takeaways
Extensions Provide Time, Not Exemptions
Trustees still need to ensure LRBAs comply with safe harbour terms — extensions simply allow extra time to do so.
Arm’s-Length Terms Are Essential
Interest rates, loan duration and repayment terms must reflect what a commercial lender would offer.
Non-Compliance Can Be Costly
Failure to meet safe harbour provisions can trigger non-arm’s-length income rules and higher tax rates.
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Frequently Asked Questions
What is an LRBA in an SMSF?
A limited recourse borrowing arrangement allows an SMSF to borrow money to purchase a single asset, typically property, with the lender’s rights limited to that asset.
What are the LRBA safe harbour provisions?
Safe harbour provisions set out minimum commercial terms for SMSF loans, including interest rates, loan terms and repayment schedules, to ensure the arrangement is at arm’s length.
Why was an extension granted to comply with the safe harbour rules?
The extension recognised that many SMSFs needed additional time to review and amend existing loan arrangements to meet the new ATO requirements.
Does the extension apply to all SMSFs with LRBAs?
The extension generally applied to SMSFs with related-party LRBAs that were not already compliant, but eligibility depended on specific circumstances.
What happens if an LRBA is not brought into compliance?
Non-compliant loans may be treated as non-arm’s-length income, potentially resulting in significantly higher tax and ATO penalties.
What’s the extension actually for, and what’s the new deadline?
The ATO has extended the deadline for SMSF trustees to ensure LRBA related party loans comply with the safe harbour provisions. The new deadline is 31 January 2017.
This gives trustees more time to update loan terms (where needed) and ensure they align with the ATO’s expectations.
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