Critical steps flagged for related party loans ahead of new provisions
SMSFs looking to refinance a related party loan have been urged to do so before 1 July to avoid having the new LRBA provisions applied to the loan.
Last month the government released draft legislation with an amendment to include the outstanding balance of an LRBA as part of a member’s total superannuation balance where members have satisfied a condition of release with a nil cashing restriction or its related party loan.
While the new provisions are set to apply to all new loans from 1 July 2018, related party loans that are refinanced after from 1 July onwards will also be caught under these changes, according to Townsends Business & Corporate Lawyers.
The best option here, the law firm said, would be to refinance the loan with a commercial lender before 1 July.
“This may not be as easy as it seems and practical considerations may pose a few hurdles,” said the firm.
“These include the ability for the fund to secure finance and make the necessary repayments as the interest rate charged by the commercial lender may be higher than the current rate, particularly where the asset subject to the loan isn’t the standard real estate type.”
For a new LRBA, Townsends said the trustee should try and secure finance before 1 July 2018 so the new rules do not apply to the arrangement.
”However, as commercial lenders generally need a few weeks to get the loan documentation drawn up and executed, time may be quickly running out for this alternative.”