The ATO have previously announced that they will not take any action against non commercial related party loans provided that they were brought to order by the end of this financial year. They have now clarified their position by stating that this will require a commercial rate of interest to be paid by the fund in this financial year i.e. for the 1 July 2015 to 30 June 2016 period.
Other non commercial aspects of the loan can be dealt with from 30 June 2016. We expect such other aspects to include the percentage advanced and to also consider the nature of the security – property or shares – and the term.
Failure to satisfy the requirements will result in the income and realised gains from the acquired asset to be taxed at the top marginal tax rate – currently 47% with the budget repair levy – even if the whole of the fund is in pension mode.
We expect further clarification to be forthcoming from the ATO in the near future.