SuperAuditors director Shelley Banton said some trustees will struggle to meet the 70 per cent LVR maximum listed in the ATO guidance for non-commercial loans by 30 June with the ratio traditionally around 80 per cent.
SMSF trustees, she said, may already be experiencing cash flow issues because under the ATO guidance they must make monthly payments from 1 July 2015 that must include both principal and interest.
“From a cash flow point of view some SMSFs may struggle to meet those safe harbour guidelines by 30 June, because they don’t have a lot of time,” said Ms Banton.
“There’s only around eight weeks to bring these up to date and to find the available cash in order to bring them into line with what they should be as of 30 June.”
SMSF practitioners and their clients, she said, may try to obtain an exaggerated value for the property in the loan in order to bring down the LVR in a short time frame in cases where the SMSF has limited cash.
“There could be some market valuations coming through that look very out of character, in order to reduce LVRs. I guess they’ll have to be looked at on their own merit,” she said.
“SMSF trustees would need to be able to prove that the market value of that asset has jumped significantly in order to reduce their LVR, but certainly different real estate agents put different prices on properties.”
SMSF practitioners with clients that are in circumstances that are unable to meet the new guidelines in place, she said, should be contacting the ATO to let them know what’s happening.
“Hopefully that way they’ll be able to get some assistance from the ATO in terms of getting the safe harbour conditions in place as soon as they possibly can,” she said.
“I think the ATO put this out to make sure there’s nothing on arm’s length and I don’t think there’s going to be too much leniency taken because the guidelines are very specific in terms of what the trustees have to do by the end of the financial year.”
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As a trustee of a SMSF – your comments on LVR are tainting us breed as criminals.
I object to your comments on valuation – remember also that if valuations are stacked up – the $1.6M recalculation on 1st July 2017 will spoil all the fun.
As I trustee, i would rather repay the loan either by cash in the fund or contribute more money, If i could and then pay out to reduce the loan.
If you are an auditor – does not mean that trustees are going deliberately going to breach valuation rules or Section 109 issues