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The Australian Tax Office has recently released Practical Compliance Guideline 2016/5 (view here). These guidelines outline the terms on which a related party loan to an SMSF must be made in order to be considered an arm’s length transaction for taxation purposes.

Areas requiring strict compliance include the loan term, interest rates, LVR, repayment frequencies and personal guarantees. There is also a requirement for all related party loans to be secured by way of a registered mortgage.

If a related party loan fails to meet all of the guideline criteria, income from the loan will be considered non arm’s length and will be taxed at the highest marginal tax rate (45%).

Which loans are affected

The guidelines apply to BOTH current and future related party loans to SMSFs regardless of the asset acquired.

Deadline for compliance

All affected loan agreements must comply with the ATO requirements by 31 January 2017. SMSFs need to act now to ensure that they are not left scrambling to comply with the ATO guidelines.

How we can help

At Kells our experienced team can help you and your affected SMSFs:

  • amend and document current loan arrangements to ensure compliance with the new guidelines;
  • prepare, execute and register a mortgage or security against the affected property or asset; and
  • where necessary, assist the SMSF in winding up the limited recourse borrowing including the transfer or sale of real property.

Please do not hesitate to contact Kells on 4221 9311 for more information.