ATO ruling on LRBAs gets thumbs up from SMSF Association

The SMSF Association welcomes the Australian Taxation Office’s Tax Determination on related-party limited recourse borrowing arrangements (LRBAs) and how they relate to the “safe harbour” guidelines for bringing greater clarity to the issue.

The ATO’s Determination, TD 2016/16, sets out how self-managed super funds with LRBAs can be in breach of the arm’s length arrangements, and the consequences for doing so – being taxed at 47 per cent on income derived from assets acquired under these non-arm’s length LRBAs.

SMSF Association Managing Director/CEO Andrea Slattery says the ATO’s clarification around this complex issue will be “extremely helpful” to specialist SMSF advisors in helping them give the right advice to their clients.

“With issues such as LRBAs and the possible tax implications, the SMSF Association is always pleased and supportive when the ATO provides determinations that assist in clarifying what can be grey areas in relation to tax.

“What the ATO determination highlights is the complexity around LRBAs, and this is why the Association urges SMSF trustees and members to seek specialist advice when considering using this investment option.

“In most instances, SMSF specialists are the only advisors with the necessary skill set to understand all the implications around LRBAs, and we would urge all fund members to take advantage of their knowledge to ensure they get the best possible advice.”

Source: SMSF Association