ATO firms its position on non-arms’ length LRBAs
The ATO states that on a number of occasions it has expressed its view that the non-arms’ length income (NALI) provisions can apply when an SMSF trustee undertakes limited recourse borrowing arrangements (LRBAs) established or maintained on terms that are not consistent with an arm’s length dealing.
With the recent legislative amendments*, it has now issued two new ATO interpretative decisions (IDs); ATO ID 2015/27 (acquiring shares) and ATO ID 2015/28 (aquiring real property)
(8): Tax and Superannuation Laws Amendment (2015 Measures NO.2) Act 2015
These new IDs maintain the ATO’s view that the NALI provisions can apply where an LRBA is established or maintained on terms that are not consistent with an arm’s length dealing. NALI is taxed at the highest marginal rate of tax.
ATO advice on what practitioners and clients should do by 30 June 2016
SMSF trustees should review any LRBA they have to determine whether it was established and maintained on terms that are consistent with an arm’s length dealing.
If this is not the case, the ATO says that it strongly encourages trustees to take steps to ensure that it is on terms consistent with an arm’s length dealing by 30 June 2016, or to bring the LRBA to an end by that date.
What the ATO will do
If it is asked to state formally (for example, in a private ruling or in litigation) whether a fund’s LRBA give rise to NALI for any income year, its approach will be consistent with its view in the new ATO IDs.
However, it will not be selecting an SMSF for review for the 2014/15 year or earlier years purely because the fund has entered into an LRBA.
The Ato may allocate compliance resources to review an LRBA of an SMSF for the 2015/16 year or later years.
Ref: ATO website- Non arm’s length limited recourse borrowing arrangments
Comments are closed.