ATO, Compliance, LRBA

PCG 2016/5 compliance pleasing

Related parties PCG 2016/5 LRBA ATO Non-licensed financial institutions

The ATO has found the majority of SMSFs with an LRBA sourced from a non-licensed financial institution are obeying the relevant compliance rules.

The ATO has revealed analysis of SMSFs with limited recourse borrowing arrangements (LRBA) where the lender is a non-licensed financial institution, including related parties, has shown compliance with the safe harbour rules set out in Practical Compliance Guideline 2016/5 is very good.

Based on the SMSF annual returns lodged for the 2022 income year, it has been established around 4000 LRBAs involved a non-licensed financial institution and the regulator recently tested the compliance status of the funds employing these gearing measures.

“In terms of the question around the safe harbour [guidelines], we have done some analysis for the 2022 [income] year and of the 4000 classified as non-financial institution LRBAs, only around 47 [had auditor contravention reports lodged] for [Superannuation Industry (Supervision) Act] section 109 breaches,” ATO superannuation and employer obligations director Paul Delahunty told delegates at The Tax Institute National Superannuation Conference held in Melbourne recently.

“That’s an indication that those funds are complying with the safe harbour guidelines, under the assumption the auditors [involved] are [performing] their check appropriately, but I think that is comforting for us that our safe harbour guidelines are being adhered to.”

Delahunty took the opportunity to acknowledge another shift in the use of SMSF gearing in recent years.

To this end, he pointed out the number of LRBAs using a non-licensed financial institution had fallen from 5000 in the 2018 income year to the 4000 confirmed in the 2022 annual returns, but also framed some context around the result.

“So [the use of these loans] has decreased, but I think it’s important to also make the point that [the overall use of] LRBAs has decreased at the same time,” he said.

“It’s pretty much a flat line around 7 per cent over that period so I think it would be a little premature to say there has been a change in terms of how LRBAs are entered into with related parties or financial institutions.”

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