The tax office announced this morning that it is allowing SMSF trustees until 31 January 2017 to ensure that any LRBAs their fund has are on terms consistent with an arm’s length dealing, or alternatively are brought to an end.
This follows the release of Practical Compliance Guideline 2016/5 in early April, which set out the ‘safe harbour’ terms on which SMSF trustees may structure their SMSF consistent with an arm’s length dealing.
Since the release of the guidelines, the ATO said it has received several requests for an extension.
“Consideration of these individual requests has highlighted that many taxpayers may require more time in order to review the terms of LRBAs. Requests from taxpayers have also highlighted that taxpayers may benefit from further ATO guidance about some aspects of the non-arm’s length income [NALI] rules,” the ATO said.
“In particular, taxpayers may benefit from further practical guidance clarifying the circumstances in which an SMSF will be taken to receive a greater amount of ordinary or statutory income under a particular non-arm’s length arrangement, compared to the amount which it would have received under an arm’s length arrangement.”
The ATO said that by 30 September this year, it will provide further information and “illustrative examples” to assist SMSF trustees and their professional advisers to make decisions about relevant arrangements.
Therefore, the ATO will not select an SMSF for an income tax review purely because it has an LRBA for the 2014-15 income years and prior, provided that the SMSF trustee ensures that any LRBA that their fund has is on terms consistent with an arm’s length dealing, or is alternatively brought to an end, by 31 January 2017.
In addition, payments of principal and interest for the year ended 30 June 2016 must be made under LRBA terms consistent with an arm’s length dealing by 31 January 2017.
