Following the issue of a ruling on SMSF borrowing, the ATO needs to clarify its position on related-party loans for SMSFs to ensure trustees are borrowing on an acceptable basis, according to one industry lawyer.
As reported in SMSF Adviser last week, the ATO has issued a private binding ruling which relates to an SMSF borrowing 100 per cent of an asset’s value on an interest free, related-party loan.
“In the circumstances set out in the ruling, they [the ATO] believe the parties were not dealing at arm’s length, and as a result the fund would receive more income than would’ve been the case if they were dealing at arm’s length,” AMP SMSF’s Peter Burgess told SMSF Adviser.
That income is considered to be non-arm’s length income, which means the fund has to pay tax on it at the rate of 45 per cent, he added.
Senior consulting lawyer at SMSF Law Shane Ellis told SMSF Adviser that in light of this private ruling, related-party loans are now at a crossroads.
“This private binding ruling has taken a counter position to a number of previous ATO [private binding rulings],” said Mr Ellis.
“The ATO needs to urgently clarify its position once more as it has clearly stated time and time again in the past that [related party loans] can be more favourable to an SMSF but not more favourable to a related-party lender.”
The SMSF Academy’s managing director Aaron Dunn said this private ruling is a “timely reminder” for SMSF trustees that the regulator will be paying close attention to these transactions moving forward.
“This is a clear realignment in thinking by the Commissioner, giving further regard to the growing number of requests being received,” Mr Dunn said.
An ATO spokesperson told SMSF Adviser that due to confidentiality provisions in the Tax Administration Act, the ATO cannot comment on particular private rulings.
The spokesperson also said private rulings are decided on the particular facts to which they relate.
The ATO warns that private binding rulings should not be used to predict ATO policy or decisions.
SUBSCRIBE TO THE SMSF ADVISER BULLETIN
23 Jun 2017Trustees reminded of ‘positive’ CGT news as EOFY loomsBy Katarina Taurian
23 Jun 2017SMSF practitioners told to reassure clients in 30 June lead upBy Miranda Brownlee
23 Jun 2017SMSFs warned on 30 June cut off for electronic transfersBy Staff Reporter
22 Jun 2017Westpac veteran and SMSF exec set to departBy Staff Reporter
22 Jun 2017ATO sets compliance targets for auditors in 2017-18By Miranda Brownlee
22 Jun 2017CGT relief still plaguing trustees, says former ATO execBy Miranda Brownlee
- view all
Trustees reminded of ‘positive’ CGT news as EOFY looms
A capital gains tax (CGT) issue that was causing confusion in the industry has been cleared up by the ATO, and professionals are being remin...read more
SMSF practitioners told to reassure clients in 30 June lead up
With the focus predominantly on super members with above $1.6 million, it may be worth practitioners informing clients unaffected by the ref...read more
SMSFs warned on 30 June cut off for electronic transfers
With a significant portion of Australians missing the 30 June cut off last year when making non-concessional contributions, Colonial First S...read more
- view all