SMSFs with a limited recourse borrowing arrangement (LRBA) via a related-party lender (RPL) that is aligned to safe harbour provisions are currently in the dark regarding the time frame in which they would be required to repay any loan relief provided to them, according to an SMSF technical specialist.
Heffron technical services manager Leigh Mansell said while the ATO has given clear guidance on the time frames for COVID-19-related rent relief repayments, it had yet to do the same for loan repayments for an LRBA aligned to the safe harbour provisions.
Speaking during a webinar late last week, Mansell said LRBAs via an RPL aligned to the provisions could receive loan relief in the same way LRBAs using, or aligned to, commercial terms are able to access relief.
“If you have got a situation where commercially all the banks are offering a six-month loan deferment, with a six-month interest capitalisation period and repayments over the length of the loan, you should be able do the same thing,” she said.
“The critical thing around loan repayments relief in this context is that one of the criteria in the provisions is that loan repayments need to be made monthly and be principal and interest,” she noted, adding this requirement would create problems where an RPL offered a six-month deferral on repayments.
“The ATO has said it won’t have a problem with non-arm’s-length income in this case and it will exercise discretionary powers as long as interest is capitalised, and trustees agree to that, and the SMSF makes up the outstanding deferred payments as soon as possible.”
She said this open-ended time frame had still to be resolved and Heffron had requested further guidance on the matter.
“One question we have before the ATO, and we do not have an answer yet, is how long is ‘as soon as possible’?” she said.
“When we were dealing with rent relief and looking at deferring payments, the ATO was very prescriptive on the repayment period based on the government’s national code, and used the remainder of the lease term or 24 months, whichever is longer.
“What has been said in ATO guidance about loan repayment relief under safe harbour provisions is ‘as soon as possible’.
“We don’t know what that means or if we can amortise loan repayments out over the remaining loan term, but we do know we can’t extend the loan term for an LRBA via a RPL when using safe harbour provisions which encode a maximum loan term of 15 years.
“So, we are still waiting on guidance, but importantly there is LRBA loan repayment relief available, whether the loan has been benchmarked to commercial providers or the safe harbour provisions.”
