The ATO will be releasing further guidelines for non-bank limited recourse borrowing arrangements (LRBA) within the next few days.
Speaking at the Chartered Accountants Australia New Zealand 2016 National SMSF Conference in Melbourne last week, ATO superannuation assistant commissioner Kasey Macfarlane said: “We’ve got scheduled and ready to go on 28 September a further taxation determination that addresses issues around limited recourse borrowing arrangements and the non-arm’s length income provisions in the income tax law.”
Macfarlane revealed feedback from the sector in response to the two practical compliance guidelines, covering LRBA safe harbour measures issued earlier this year, prompted the ATO to take this course of action.
“In particular, what this taxation determination will look at is that second limb non-arm’s length income provisions that say well okay you’ve got a situation where the parties aren’t dealing with each other at arm’s length, you’ve got an LRBA that’s on non-arm’s length terms but then the next step of the process is to sort of say, well does that arrangement result in the SMSF receiving more statutory or ordinary income than it would’ve otherwise acquired if the parties were acting at arm’s length,” she explained.
“So that taxation determination will clarify our views around that and provide an example of the sorts of things people need to look to in determining that.”
Macfarlane added the regulator was also planning to publish a practical compliance guideline covering off minimum pension underpayments.
“The guideline will provide practical and transparent guidance for trustees about the circumstances where the commissioner will exercise his general powers of administration, even though the minimum pension payments may not have been met in a year, to accept for compliance purposes that the fund is entitled to ECPI (exempt current pension income) and the income stream continues,” she said.
According to Macfarlane the guideline will be in line with the ATO’s more pragmatic and flexible approach in recent times in dealing with this issue but pointed out the commissioner is likely to use his discretion in one-off incidences and trustees should not be relying on him to exercise this power on a regular basis.