ATO extends LRBA amnesty

LRBA compliance relief

Compliance relief regarding amended non-bank limited recourse borrowing arrangements has been extended through an amendment to PCG 2016/5.

The ATO has amended Practical Compliance Guideline (PCG) 2016/5 with the inclusion of a new paragraph effectively extending the compliance relief it is providing SMSF trustees for limited recourse borrowing arrangements (LRBA) not originally established on arm’s-length terms.

Specifically, the regulator has added one new paragraph, 17A, applying to SMSF trustees who have either amended a non-bank LRBA before the deadline of 31 January 2017 such that the terms are now on an arm’s-length basis or terminated the LRBA in question from 1 July 2015 and repaid the associated principal and interest in a consistent manner with an arm’s-length dealing from 1 July 2015.

Under the amendment, trustees who have taken this action “can also be assured that the commissioner will not apply compliance resources to determine whether paragraphs 295-550(1)(b) or (c) or paragraphs 295-550(5)(b) or (c) of the Income Tax Assessment Act 1997 apply to income derived by the SMSF for the 2018/19 and later income years from an asset that is subject to that LRBA”.

Paragraphs 295-550(1)(b) or (c) or paragraphs 295-550(5)(b) or (c) of the Income Tax Assessment Act 1997 are those that define non-arm’s-length income and non-arm’s-length expenditure.

The previous version of PCG 2016/5 offered a more limited amnesty outlined in paragraph 17.

This section of the PCG stated: “SMSF trustees who satisfy these conditions, and apply this guideline in good faith to revise the terms of their existing LRBAs before 31 January 2017, can be assured that the terms of their LRBA will not be subject to any further compliance action by the ATO for the 2014/15 years and prior.”

For SMSFs that missed the stipulated 31 January 2017 deadline, it has been recommended these trustees make the required amendments to their LRBAs as soon as possible to minimise any non-arm’s-length penalties that might be incurred and to consider making a voluntary disclosure to the ATO about their situation.

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