The SMSF Association has welcomed the ATO’s latest tax determination (TD) for bringing greater clarity to the issue of related-party limited recourse borrowing arrangements (LRBA) and how they relate to the safe harbour guidelines.
TD 2016/16 sets out how SMSFs with LRBAs could be in breach of the arm’s-length arrangements and the consequences for doing so – a 47 per cent tax on the income derived from assets acquired under these non-arm’s-length LRBAs.
SMSF Association chief executive Andrea Slattery said the ATO clarification around the complex issue would be extremely helpful to specialist SMSF advisers in giving the right advice to their clients.
“With issues such as LRBAs and the possible tax implications, the association is always pleased and supportive when the ATO provides determinations that assist in clarifying what can be grey areas in relation to tax,” Slattery noted.
“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 advisers 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 that they get the best possible advice.”