Check Your SMSF Related Party Loan Terms

26 Jul 2023

Written by

David Busoli, Principal

The safe harbour provision interest rate to be charged to SMSFs with related party loans has increased by a whopping 3.5% for the 2023/2024 financial year. It’s now 8.85% for real estate and 10.85% for listed securities. This may encourage trustees to sell the investment or seek refinancing from an arm’s lender at a lower rate – but first check the loan documentation.

Under the safe harbour provisions the interest rate may have been fixed for 5 years so it’s possible that the rate will not need adjusting for the moment.

It’s always worth mentioning, in any consideration of related party loans, that a member’s prorata share of the outstanding loan is counted as an asset for total super balance purposes under an obscure and unnecessary rule that was instigated to fix a problem that did not exist – but I won’t expand on that here. Needless to say, this may have the effect of preventing a member form making a non-concessional contribution to pay out the loan – a classic circular argument – unless it’s refinanced through an arm’s length lender first. It should also be noted that this may not be a solution as even non-related loans are counted once the member’s benefit becomes unrestricted non-preserved.

As always, I am available to discuss strategies with our Alliance Partners.

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