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:
|Condition||Real Property||Listed Securities|
|Interest Rate||In Line with RBA Indicator Lending Rate – 5.75%||RBA Rate + 2% – 7.75%|
|Loan Term||A maximum of 15 years||A maximum of 7 years|
|Loan to market value ratio||Maximum of 70% LVR||Maximum of 50% LVR|
|Security||A registered mortgage over the property is required||A registered charge or Mortgage|
|Repayments||Must be made monthly and each repayment is principal and interest||Must be made monthly and each repayment is principal and interest|
|Loan Agreement||A written and executed loan agreement||A 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:
- Restructure the loan terms to meet the guidelines
- Pay out the borrowing
- 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.