ATO Practical Compliance Guideline (PCG 2016/5) looks to provide practical guidance to assist taxpayers in complying with relevant tax laws when utilising a limited recourse borrowing arrangement (LRBA) to acquire real property (residential or commercial).

Are your SMSF borrowings compliant under the new ATO ‘Safe Harbour’ terms?

ATO Practical Compliance Guideline (PCG 2016/5) looks to provide practical guidance to assist taxpayers in complying with relevant tax laws when utilising a limited recourse borrowing arrangement (LRBA) to acquire real property (residential or commercial).

Its primary aim is to help related party and non-bank LRBAs to clean up their current borrowing arrangement set-up to ensure compliance. The ATO deadline for ‘clean-up’ is 31 January 2017.
Safe Harbour terms in a nutshell to ensure compliance:

  • Interest rate – 5.75% for 2015-2016 year (in accordance RBA Indicator Lending Rates as determined each May)
  • Fixed or variable – Either fixed or variable, although fixed portion is only for a maximum of 5 years
  • Term of Loan – cannot exceed 15 years (inclusive of any maximum 5 year fixed term). Where a refinance is involved, the term is 15 years less the duration of previous loan relating to asset
  • LVR – maximum of 70% LVR (including total amount of all loans)
  • Security – registered mortgage
  • Personal guarantee – not required
  • Repayment frequency – monthly
  • Repayment nature – principal and interest for fixed or variable
  • Practical tip – When purchasing through an SMSF structure in Victoria, NSW or Qld, always check with the proposed client Lender as to their timing requirements for the signing of the Bare/ Holding Trust Deed.

At Dangerfield Exley Lawyers, we help ensure your SMSF strategies are legally compliant from the outset. We carefully review property contracts and related SMSF documents before investment transactions are entered into. We constantly review private rulings on a case-by-case basis, interpretive decisions from the ATO and look to update you and our clients on practical work-arounds to help get these transactions completed.

As we always try to reiterate, if you act on incorrect legal advice when purchasing a property through your SMSF, you could be faced with:

  • lost tax benefits
    • reduced retirement savings
    • double stamp duty payments.

BEFORE your sign anything simply call (03 9863 7621) or email SimonAaron or Annabelle for a free consultation to find out how Dangerfield Exley Lawyers can ensure that you are legally protected. It’s a sensible place to start.

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