The release of the safe-harbour interest rates for SMSFs with related-party loans should serve as a reminder to ensure a fund has met them in the past and to prevent triggering non-arm’s-length income (NALI).
SMSF Alliance practice principal David Busoli said the setting of the new rates for 2025/26, at 8.95 per cent for property and 10.95 per cent for listed equities, should be applied to existing loans immediately.
“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,” Busoli added.
He pointed out that if the loan balance is higher than it should be, the ATO could invoke NALI, leading to both the net income of the asset and any capital gains being taxed at 45 per cent, even if the fund was 100 per cent 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,” he said.
He added fixing a mistake in the loan balance or disposing of the asset would not guarantee compliance, but could make it less likely NALI will be invoked, and he reminded practitioners and trustees to be careful of how they made repayment for the loan.
“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,” he said.
“This may have the effect of preventing a member from 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.”
