Late last year, the ATO released two interpretative decisions which indicate that borrowings on non-commercial terms can cause non-arm’s length income.
SMSF trustees are expected to have these arrangements on commercial terms by 30 June 2016, the ATO announced in late October this year.
Earlier this week, the ATO issued a statement urging SMSF trustees to review their LRBA to determine whether it was established and maintained on terms that are consistent with an arm’s length dealing.
“If this is not the case, we strongly encourage you to take steps to ensure that it is on terms consistent with an arm’s length dealing by 30 June 2016 or to bring the LRBA to an end by that date,” the tax office said.
The ATO further stressed that any new LRBAs which an SMSF trustee enters into should be established and maintained on terms consistent with an arm’s length dealing.
SMSF trustees in breach of the new rules may find themselves in hot water, with the ATO suggesting the Commissioner may allocate compliance resources to review an LRBA of an SMSF for the 2015–16 financial year or for later years.