SMSFs told to review loans after safe harbour rate rise
With the interest rate benchmark under the safe harbour terms set to jump to 5.94 per cent next financial year, SMSFs may want to explore some of the SMSF loan options available from commercial lenders to reduce costs, says a technical expert.
The RBA recently adjusted the standard investor interest rate for residential property to 5.94 per cent, up from 5.80 per cent for 2018–19, which is also the rate used by related-party limited recourse arrangements under the ATO’s safe harbour provisions.
The safe harbour provisions set out what the ATO considers to be commercial terms for a loan.
SuperConcepts executive manager of SMSF technical and strategic services Philip La Greca said the increase in the safe harbour interest raises a good opportunity for trustees to review their current finance rates, particularly with the RBA lowering the official cash rate to 1.25 per cent earlier this month.
“Even though official rates are falling, and could possibly fall further, it looks likely that rates for SMSFs with related-party loans will be charged higher interest if they follow the guidelines,” Mr La Greca said.
“We’re seeing a lot of enquiries from trustees and administrators wanting to know their options around lowering the rates and expenses incurred by funds given the rates elsewhere in the market.”
Mr La Greca said trustees should look around for the best deal possible in light of this new revision to ensure their funds are getting a bigger retirement benefit by paying lower expenses.
“A lot of the banks have pulled out of LRBAs, but the gap is being filled by smaller providers who are trying to establish themselves with competitive offers,” he said.
SMSF advisers and their clients, he said, have a best interest duty to the client or fund to actively ensure that the fund incurs the least amount of expenses.