The ATO has recently released guidelines in relation to super funds with related party borrowings.

While your super fund has always been able to borrow from a related party, the ATO has advised that in order for these loans to continue to be treated as arms length then certain terms and conditions must be in place prior to 31st January 2017. If these conditions are all met the ATO has advised that the safe harbour provisions will apply which means the ATO will not take any compliance activity in relation to these loans for the 2015 years and prior.

The  conditions are as follows:

ConditionReal PropertyListed Securities
Interest RateIn Line with RBA Indicator Lending Rate – 5.75%RBA Rate + 2% – 7.75%
Loan TermA maximum of 15 yearsA maximum of 7 years
Loan to market value ratioMaximum of 70% LVRMaximum of 50% LVR
SecurityA registered mortgage over the property is requiredA registered charge or Mortgage
RepaymentsMust be made monthly and each repayment is principal and interestMust be made monthly and each repayment is principal and interest
Loan AgreementA written and executed loan agreementA written and executed loan agreement

We advise that all related party loan agreements need to be reviewed to ensure that they are on an arms length basis.
There are a number of options available:

  1. Restructure the loan terms to meet the guidelines
  2. Pay out the borrowing
  3. Confirm that the terms of your loan are arm’s length by ensuring you have documentation to prove this

 

If the terms of your related party loan are on an arm’s length basis with evidence provided by a commercial lender then we suggest that the terms don’t necessarily need to be changed to comply with the above it may be assessing the risks and making a decision as to whether to re-structure.

We will ensure that all of our clients with related party loans have reviewed these prior to 31 January 2017.

 

DISCLAIMER: The information on this website and the links provided are for general information only and should not be taken as constituting professional advice from Hall Browns Accountants. You should consider seeking the appropriate legal, financial, or taxation advice to check how the website information relates to your unique circumstances.

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