The ATO PCG 2016/5 sets out the “safe harbour” terms on which SMSF trustees may structure their LRBAs consistent with an arm’s length dealing.  Further to this, the ATO publishes annually the safe harbour LRBA rate for SMSFs.  This article provides the applicable rates for 2021-22i (both safe harbour and Division 7A benchmark interest rates), the related proposed Division 7A changes and implication for LRBAs that do not meet the safe harbour rates or other terms.

Importantly LRBAs that do not meet the safe harbour terms fully will not automatically be deemed to be dealing on non arm’s length terms.  Rather, the onus will shift to the trustee to demonstrate that those LRBA terms were entered into and consistent with an arm’s length dealing.

2021-22 applicable lending rates

The ATO SMSF safe harbour interest rate is the RBA rate for a “standard variable housing loan for investors”.  For 2021/22, the revised safe harbour interest rate is 5.10% for real property and 7.10% for listed shares or listed units (which are unchanged from the previous financial year).

Where the SMSF LRBA lender is a related private company, the LRBA loan terms may have to meet in addition the requirements of Division 7A Part III of the ITAA 1936.  Under Division 7A, the benchmark interest rate for an income year is the RBA rate for a “standard variable housing loan for owner-occupier”.  For 2021-22, this benchmark rate is 4.52% (which is unchanged from the previous financial year).

For any further information regarding this article please call SUPERCentral on 02 8296 6266 or email info@supercentral.com.au.