Last week, the ATO released a practical compliance guideline, which sets out the 'safe harbour' terms on which SMSF trustees may structure their related-party LRBAs consistent with an arm's-length dealing.
SMSF members with these arrangements in place are expected to be compliant by 30 June this year, meaning loan repayments will be expected to be in line with commercial terms for all of this financial year.
Michael Hallinan, special counsel for superannuation at Townsends Business & Corporate Lawyers, said professionals need to identify “very quickly” which of their clients have LRBAs that are not structured on commercial terms.
“There’s not much time actually,” he told SMSF Adviser. “It takes longer than you think to restructure a loan. Much longer.”
He added: “Obviously with the budget looming as well there could be other significant changes. So they could be quite tight for time in terms of dealing with both adverse budget measures and LRBA changes."
Julie Hartley, a solicitor at Townsends Business & Corporate Lawyers, also made note of the loan arrangements that the guidance does not address.
“We don’t think it has helped everyone. It is really limited to real property LRBAs and funds purchasing listed shares or units. But from what we see most clients when it comes to shares or units, it’s unlisted shares or units. Which means for those circumstances they haven’t been provided with any guidance at all,” Ms Hartley told SMSF Adviser.
“We see clients with LVRs as high as 90 per cent in this type of arrangement."
Those with clients holding these kind of loan arrangements should work to benchmark them as soon as possible.
“If you can’t benchmark it, it’s obviously non-commercial and you’ve got to do something – unwind it or restructure the current arrangements,” Mr Hallinan said.
The ATO is encouraging SMSF trustees to get in touch if they fear the individual circumstances of a fund mean that they may not be able to restructure their loan by 30 June.
“They can actually write to and provide a broad outline of their circumstances, then we get in touch and talk with them about that further,” the ATO’s Kasey Macfarlane told SMSF Adviser.
“If that is a concern now, then they should do that as soon as possible rather than waiting."