ATO's deadline for review non-arm's length LRBAs extended
The ATO is allowing SMSF trustees additional time until 31 January 2017 to ensure that any LRBA’s that their fund has are on terms consistent with an arm’s length dealing, or alternatively are brought to an end.
Previously, in early December 2015, we advised SMSF trustees to review LRBA’s in their fund and ensure that they are on terms consistent with an arm’s length dealing by 30 June 2016.
Why is the deadline being extended?
Since the issue of our Practical Compliance Guideline 2016/5 on 6 April 2016 we have received several individual requests from SMSFs to allow them further time beyond 30 June 2016 to review the terms of their LRBA arrangements to ensure that their arrangements are on terms consistent with an arm’s length dealings.
Consideration of these individual requests has highlighted that many taxpayers may require more time in order to review the terms of LRBA’s. 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. 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.
This guidance may assist SMSF trustees and advisers to make decisions about whether the NALI rules apply to their particular arrangements.
What we will do
By 30 September 2016 we will provide further information and illustrative examples to assist SMSF trustees and advisers to make decisions about relevant arrangements.
Therefore, we 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’s 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; and
- 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.