The safe harbour provision interest rate for SMSFs with related party loans has been set for the 2025/26 year at 8.95% for property and 10.95 for listed equities. It’s vital that these rates be applied against existing loans as applicable. This is also a perfect opportunity to check if the current loan balance is equal to, or less than, what it should be if the safe harbour rules had been adhered to since inception. This is more than just a prudent idea, it’s vital, as if the balance is higher than it should be, the ATO could invoke NALI thereby making both the net income of the asset and its ultimate capital gains taxable at 45%. This would apply even if the fund was 100% in pension. The ATO is aware of those SMSFs with related party loans, so I expect it is just a matter of time before they are looked at a little more closely than some trustees might like.
We have created a calculator that tracks the safe harbour progress of a related party loan from inception and compares the current balance with the result that adhering to the safe harbour provisions would produce. Rectifying an errant balance, or selling the asset now, does not guarantee compliance but it does make it less likely that NALI will be invoked. If you have a case you’d like checked please let me know.
It’s always worth mentioning, in any consideration of related party loans, that a member’s pro-rata share of the outstanding loan is counted as an asset for total super balance purposes. 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. Be careful though, this will not be a solution if the member’s benefit is unrestricted non-preserved as even arm’s length balances are included in the member’s total super balance under those conditions.
Interestingly, in an uncharacteristically reasonable measure associated with the proposed Div 296 tax, outstanding limited recourse borrowing balances are excluded from the total super balance count. If this measure proceeds, I wonder if this change would be applied to all total super balance counts or if we would have two different total super balance calculations depending on the context to which it is applied.
