Consider LRBA rates ahead of new financial year

The Reserve Bank has revealed its new interest rate for limited recourse borrowing arrangements for 2020–21.

The new LRBA interest rate for real property is at 5.1 per cent, down from 5.94 per cent for 2018–19, according to the RBA’s most recent publication of indicator lending rates.

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Meanwhile, the LRBA interest rate for listed shares or units is at 7.1 per cent for 2020–21, reduced from the previous years at 7.94 per cent.

In a blog, Smarter SMSF chief executive Aaron Dunn said it is important that the capitalised interest during 2020–21 is appropriately reduced from 1 July in line with the interest rate adjustment.

“It will mean that the fund will have to recalculate its repayments after this six-month period, accounting for the change in interest rates,” he said.

Further, Mr Dunn said trustees should also take into account the impacts of COVID-19 on their SMSF, with rent relief being offered to tenants due to the government’s economic response to the pandemic.

“The impact of rental relief being provided has then naturally put pressure on a fund’s ability to meet loan repayments where an LRBA is in place,” Mr Dunn said.

“For related-party loan arrangements, the ATO has provided temporary LRBA relief to where the repayments that are deferred are consistent with those set out on the Australian Banking Association’s website.”