The ATO has recently released guidelines concerning related party loans. SMSF Trustees may need to take action to adjust borrowings in order to reflect the conditions set out in the new guidelines.
The ATO is concerned that some related party loans to SMSF's have not been conducted on an arm's length basis. They have announced that compliance activities will be undertaken on these types of arrangements during the 2016/17 financial year.
If the ATO determines that a related party loan in not on an arm's length basis, any income derived from the investment will be deemed non-arm's length income and will be assessed at the highest marginal rate.
The new guidelines issued by the ATO set out "safe harbour" conditions which, if satisfied, will support the presumption that the loan agreement is on an arm's length basis.
These guidelines include:
Given the consequences of being deemed non-arm's length income, all SMSF Trustees with related party borrowings should consider:
Action must be taken now as the ATO has announced that the loan must comply by 30th June 2016.
Please contact KK Partners Group to discuss your situation if you think this may apply to you.