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The ATO has issued a taxation determination (TD 2016/16) concerning whether thenordinary or statutory income of a self managed super fund (SMSF) would bennon-arm’s length income (NALI) under the tax law, and therefore attract 47{256a07afe6cf75b7e23500f37551d0affdf8bab65b8226b57f0b6b9aa6c8fc70} tax,nwhen the parties to a scheme have entered into a limited recourse borrowingnarrangement (LRBA) on terms which are not at arm’s length.
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The ATO has also updated a practical compliance guideline (PCGn2016/5) which sets out the Commissioner’s “safe harbour” terms for LRBAs. If annLRBA is structured in accordance with the guideline, the ATO will accept thatnthe LRBA is consistent with an arm’s length dealing and the NALI provisionsn(47{256a07afe6cf75b7e23500f37551d0affdf8bab65b8226b57f0b6b9aa6c8fc70} tax) will not apply. Trustees who do not meet the safe harbour terms willnneed to otherwise demonstrate that their LRBA was entered into and maintainednconsistent with arm’s length terms.
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TIP:nThe ATO has allowed a grace period to 31 January 2017 for SMSFs tonrestructure LRBAs on terms consistent with the compliance guideline’s safenhabour terms (or bring LRBAs to an end before that date). Please contact ournoffice for further information.
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Important: Clients should not act solely on the basis of the material contained in Update. Items herein are general comments only and do not constitute or convey advice per se. Also, changes in legislation may occur quickly. We therefore recommend that our formal advice be sought before acting in any of the areas. This update is issued as a helpful guide to clients and for their private information.
