Related Party SMSF Loans

Related Party SMSF Loans

The ATO have updated the interest rates to be charged for related party limited recourse borrowing loans that seek to comply with the safe harbour provisions.

Where the secured asset is real property the rates are;

2019/20 – 5.94%
2018/19 – 5.8%
2017/18 – 5.8%
2016/17 – 5.65%
2015/16 – 5.75%

Where the secured assets are listed securities the rate is 2% higher in each case.

The safe harbour provisions require loans to be principal and interest in nature with a maximum term of 15 years (property) or 7 years (listed securities). The published rates can be applied on a variable basis or may be fixed for up to 5 years (property) or 3 years (listed securities). Refinancing may occur but, if the new loan is also non-arm’s length, the time limits mentioned are based on the original loan commencement date.

Where a loan is available from a non-related entity that is more favourable than the above then those terms may be adopted but be aware that the ATO will require absolute proof that the particular loan would have been granted to the particular SMSF on the terms stated. Ideally this proof is in the form of a letter of offer though it is generally quite impractical to advance a loan application to this stage for this purpose.

An important consideration is the government’s plan to reintroduce legislation, that lapsed prior to the election, where non-related limited recourse loan balances will be added, prorata, to the total super balance of fund members. This will prevent some members from making non-concessional contributions intended to pay out the loan – you can expect grandfathering for existing arrangements.

Whilst the choice of available lenders has shrunk I am sometimes contacted by alternative lenders. Most recently by a lender interested in funding SMSF residential property loans to a 75% maximum LVR with an interest rate of 5.39% to 6.29%. I make no recommendations of any such providers but, if your interested, let me know and I’ll provide their contact details so you can make your own investigations.