Interest rate for SMSF loans set to rise under safe harbour terms
Despite the recent cut to official interest rates, an update in the ATO’s superannuation rates and thresholds indicates that the minimum interest rate for SMSF loans under the safe harbour terms will increase for the 2019–20 financial year.
The ATO recently updated its superannuation rates and thresholds to include the interest rate amount for the 2019–20 financial year for SMSFs that want to ensure their limited recourse borrowing arrangements (LRBAs) are consistent with the safe harbour terms outlined in Practical Compliance Guideline 2016/5.
Back in 2014, the ATO confirmed that borrowings on non-commercial terms from a related party could cause non-arm’s length income (NALI). In order to avoid NALI, SMSFs had to restructure their LRBAs to ensure they were consistent with an arm’s length dealing.
To assist SMSFs in restructuring their loans on arm’s length terms, the ATO released PCG 2016/5, which set out the safe harbour provisions for what it would consider to be commercial terms.
However, the ATO also confirmed in 2016 that if the safe harbour terms were not applied, the loan would not be subject to NALI if the SMSF could demonstrate that the terms of their loan were consistent with the terms that a commercial provider would offer.
In a recent update, the ATO stated that the LRBA interest rate for real property assets under the safe harbour terms will rise to 5.94 per cent, up from the 5.80 per cent rate that was set for the 2018–19 financial year.
The LRBA interest rate for listed shares or units will increase to 7.94 per cent for the 2019–20 financial year, up from the 7.80 per cent set for this year.
Following the decision of the Reserve Bank to cut interest rates this month, Reserve Bank governor Philip Lowe stated the board wouldn’t rule out making further cuts to interest rates this year.
“Our latest set of forecasts were prepared on the assumption that the cash rate would follow the path implied by market pricing, which was for the cash rate to be around 1 per cent by the end of the year,” Mr Lowe said.
“There are, of course, a range of other possible scenarios and much will depend on how the evidence evolves, especially on the labour market.”
Miranda Brownlee
20 June 2019
smsfadviser.com
Latest Newsletters
Hot Issues
- Aged care report goes to the heart of Australia’s tax debate
- Removed super no longer protected from creditors: court
- ATO investigating 16.5k SMSFs over valuation compliance
- The 2025 Financial Year Tax & Super Changes You Need to Know!
- Investment and economic outlook, March 2024
- The compounding benefits from reinvesting dividends
- Three things to consider when switching your super
- Oldest Buildings in the World.
- Illegal access nets $637 million
- Trustee decisions are at their own discretion: expert
- Regular reviews and safekeeping of documents vital: expert
- Latest stats back up research into SMSF longevity and returns: educator
- Investment and economic outlook, February 2024
- Planning financially for a career break
- Could your SMSF do with more diversification?
- Countries producing the most solar power by gigawatt hours
- Labor tweaks stage 3 tax cuts to make room for ‘middle Australia’
- Quarterly reporting regime means communication now paramount: expert
- Plan now to take advantage of 5-year carry forward rule: expert
- Why investors are firmly focused on interest rates
- Super literacy low for cash-strapped
- Four timeless principles for investing success
- Investment and economic outlook, January 2024
- Wheat Production by Country
- Time to start planning for stage 3 tax cuts: technical manager
- Millions of Australians lose by leaving savings in default MySuper funds
- Vanguard economic and market outlook for 2024: A return to sound money
- An investment year of ups and downs
Article archive
- January - March 2024
- October - December 2023
- July - September 2023
- April - June 2023
- January - March 2023
- October - December 2022
- July - September 2022
- April - June 2022
- January - March 2022
- October - December 2021
- July - September 2021
- April - June 2021
- January - March 2021
- October - December 2020
- July - September 2020
- April - June 2020
- January - March 2020
- October - December 2019
- July - September 2019
- April - June 2019
- January - March 2019
- October - December 2018
- July - September 2018
- April - June 2018
- January - March 2018
- October - December 2017
- July - September 2017
- April - June 2017
- January - March 2017
- October - December 2016
- July - September 2016
- April - June 2016
- January - March 2016
- October - December 2015
- July - September 2015
- April - June 2015