SMSF members with a related-party limited recourse borrowing arrangement (LRBA) will need to revise their documentation following changes to the safe harbour rates for the next financial year, an actuarial firm has noted.
Accurium head of SMSF education Mark Ellem said updated safe harbour interest rates had been published by the Reserve Bank of Australia (RBA) for the 2026 financial year and were likely to soon appear on the ATO’s website, meaning related-party LRBAs had to be updated to avoid triggering non-arm’s-length income (NALI).
The new rate for an LRBA over real property for 2025/26 will be 8.95 per cent, down from 9.35 per cent in the 2025 financial year, and for LRBAs over listed shares or units the rate will be 10.95 per cent, down from 11.35 per cent.
Ellem said compliance with the safe harbour rate was critical because section 295-550 of the Income Tax Assessment Act 1997 requires the loan terms of a related-party LRBA to be consistent with an arm’s-length dealing.
“The ATO’s Practical Compliance Guideline 2016/5 sets out the ‘safe harbour’ terms for related-party LRBAs,” he said in a post on the firm’s website.
“As long as your SMSF structures LRBAs in line with these terms, the ATO will accept that the arrangement is on arm’s-length terms, ensuring that the NALI provisions do not apply purely because of the borrowing arrangement.
“A key safe harbour requirement is the loan interest rate. For real property assets, the interest rate is based on the RBA’s Indicator Lending Rate for banks providing standard variable housing loans for investors, using the May rate preceding the income year,” he added, noting the rate for listed assets was 2 percentage points higher.
“If your SMSF’s related-party LRBA uses the ATO’s safe harbour terms, you must update the loan repayments to reflect the new interest rate from the July 2025 payment. Review your loan schedule to ensure repayments are recalculated in line with the revised rate.
“There is one important exception. The safe harbour rules permit the interest rate to be fixed at the start of the LRBA, for up to five years for real property or three years for share/unit-backed arrangements.
“If your LRBA is within such a fixed-rate period that commenced from the start of the loan, there is no requirement to adjust repayments until that fixed term ends.”
He encouraged SMSF trustees and practitioners to assess whether LRBAs with related-party loans were using the safe harbour rules and to update the rates, as well as any loan repayment schedules, and to document all changes and retain evidence for audit purposes.
