As set out in our previous article, the deadline for ensuring non-commercial related party limited recourse borrowing arrangement (LRBA) loans are rectified to reflect commercial terms is 31 January 2017. This date is fast approaching and SMSF trustees must take immediate action to ensure compliance with the ATO’s guidelines set out in PCG 2016/5.
In summary, compliance with PCG 2016/5 requires SMSF trustees to either:
- Bring the LRBA loan terms in line with the safe harbour terms with effect for the entire 2015/16 year (including that principal and interest for the 2015/16 year be paid);
- Refinance the loan through a commercial lender (however, even if this is done, the loan must still be put on commercial terms for the 2015/16 year); or
- Repay the LRBA loan (again, the loan must still be put on commercial terms for the 2015/16 year).
More information on PCG 2016/5 can be found in our Time for Action article.
If you would like assistance in rectifying non-complying LRBA loans, please contact: