Now that the new year has started, it is important to review any superannuation funds that have limited recourse borrowing arrangements financed using related party loans operating within the ATO’s safe harbour terms.
Practical Compliance Guideline 2016/5 was released in April 2016. It outlines safe harbour terms on which related party loans can operate to demonstrate that a loan is maintained on an arm’s length basis. Loans that are not on an arm’s length basis are at risk of running afoul of the non-arm’s length income (NALI) regime.
The safe harbour terms specify a particular interest rate, which resets on 1 July each year. For the year 2017/2018, the interest rate for related party loans used to purchase real property is 5.80%. This is up from last year’s 5.65%.
The interest rate for loans used to purchase listed securities is 7.80%, up from 7.65%.
All relevant loans should be reviewed and adjustments to repayments made accordingly. Any automatic debit arrangements should be checked to make sure they’re calculated at the new rate.