Refinancing for related party loans predicted to rise
With the safe harbour interest rate expected to see a significant jump for the 2023–24 income year, this may prompt some SMSFs to refinance their related party loans with commercial lenders.
Speaking to SMSF Adviser, Mortgage Ezy executive director Peter James said he expects demand for refinancing from SMSFs with related party loans will likely see a spike next year when the safe harbour rate is set for the 2023–24 financial year in June.
The interest rate set out under the ATO’s safe harbour terms is based on the Reserve Bank of Australia Indicator Lending Rates for banks providing standard variable housing loans for investors.
While the safe harbour rate for the 2022–23 financial year is only sitting at 5.35 per cent, with the Reserve Bank still trying to contain inflationary pressures its likely this rate will see a significant jump for the 2023–24 financial year.
“We’ve gone from virtually zero inflation to six per cent and that’s tipped to peak around 8 per cent this year despite the recent rises in the [cash rate target],” said Mr James.
“I would suggest that if SMSFs [with these types of loans] can refinance into a more traditional loan they will do so.”
The safe harbour interest rate saw a small increase in for the 2022–23 financial year from 5.10 per cent to 5.35 per cent. Prior to that it had remained at 5.10 per cent for two financial years.
SMSF specialist broker and managing director of SMSF Loan Experts, Yannick Leko previously stated that he hadn’t seen much take up of refinancing from SMSFs with related party loans despite some of the loans from third party commercial lenders being more competitive.
Mr Leko said this is partly down to a lack of education in this area, with some trustees under the misunderstanding that they cannot refinance these types of loans.
Miranda Brownlee
Miranda Brownlee is the deputy editor of SMSF Adviser, which is the leading source of news, strategy and educational content for professionals working in the SMSF sector.
Since joining the team in 2014, Miranda has been responsible for breaking some of the biggest superannuation stories in Australia, and has reported extensively on technical strategy and legislative updates.
Miranda also has broad business and financial services reporting experience, having written for titles including Investor Daily, ifa and Accountants Daily.
