LRBAs: can you drown in the safe harbour? There has been speculation and uncertainty regarding related party limited recourse borrowing arrangements (LRBAs) entered into by self managed superannuation funds (SMSFs) for sometime. In particular, it has been unclear in what circumstances these loans will engage the non-arm’s length income (NALI) provisions in section 295-550 of the Income Tax Assessment Act 1997 (Cth). If these provisions apply to any income derived from an arrangement, tax at the highest marginal rate will be payable on that income (even if the SMSF is in pension mode). Now that the dust has settled on the ATO’s Practical Compliance Guideline 2016/5 re ‘safe harbour’ loan terms, now is the time to look at any arising queries. Andrew O’Bryan is partner at Hall and Wilcox.
Posted on May 17, 2016