The following example has been sourced from PCG 2016/5. It has been restated here but comments in italics have been added to provide greater clarification. The estimates used have been sourced from our calculator. Example 1 – real property A complying SMSF borrowed money under an LRBA on terms consistent with section 67A of the SISA. It used the...
Practical Compliance Guideline PCG 2016/5 focuses on the commerciality of related party limited recourse loans. As previously established, the ATO have determined that all income and realised capital gains from non-commercial related party loans will be taxed as non arm’s length income at the top marginal personal rate. Such income may only be reduced by expenses relating directly...
The topic of what was, and was not, permissible for related party limited recourse loans had been a source of conjecture for years. The ATO made a definitive move with the release of Practical Compliance Guideline PCG 2016/5. This guideline addresses the need to maintain such loans on an arm’s length basis and introduces an amnesty for those existing...
Limited Recourse Borrowing Arrangements (LRBAs) allow SMSFs to legally gear. Such a practice gives the trustees an opportunity to multiply the profits the Fund can earn on a given investment as the rate of return is determined against the equity not the debt. For example, a $100,000 asset purchased with a 50% borrowing has only required...
Market Linked pensions were generally available for only three years from 20th September 2004 to 1st July 2007. They will only be encountered in SMSFs now if they were commenced during that period or if they were established later due to an internal rollover of a defined benefit pension or of an existing market linked pension. Otherwise...
Once an account-based pension commences, there is an ongoing requirement to ensure the pension standards in the super laws are satisfied; this includes meeting the minimum pension payment requirements. If a fund fails to meet the minimum pension payment requirements in an income year the super income stream will be taken to have ceased at the start...
Once a member has satisfied a condition of release benefits may be drawn as a pension or lump sum subject to the Fund Deed. All benefits drawn after attaining age 60 are tax free. Between preservation age and age 60 the tax components of the member account must be considered. These comprise a taxable and tax exempt component....
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A member’s total superannuation balance (TSB) is increased by their share of the outstanding balance of a limited recourse borrowing arrangement (LRBA) that commenced on or after 1 July 2018 if the member has: satisfied a relevant condition of release with a nil cashing restriction, or the LRBA is a related party loan The relevant conditions of...
The ATO has provided a useful reference guide to winding up your SMSF. It has been out of print for some time as the ATO have converted its content to a number of search pages but this copy is still relevant. ...