SMSF Association welcomes LRBA clarity
The SMSF Association has welcomed the clarity provided by the Australian Taxation Office (ATO) on related-party limited recourse borrowing arrangements (LRBAs) and non-arm's length income, and said the complexity required trustees to seek specialist advice.
The ATO's determination, TD 2016/16 set out how self-managed superannuation funds with LRBAs could be in breach of the arm's length arrangements.
The ATO said in circumstances where self-managed superannuation funds (SMSFs) with LRBAs are not on arm's length terms, non-arm's length income (NALI) would arise, and the consequence for doing so would be getting taxed at 47 per cent on income derived from assets attained under these non-arm's length LRBAs.
SMSF Association managing director/chief executive, Andrea Slattery, said the ATO clarification would be "extremely helpful" for what was a very complex issue for specialist SMSF advisers in advising clients.
"With issues such as LRBAs and the possible tax implications, the SMSF Association is always pleased and supportive when the ATO provides determinations that assist in clarifying what can be grey areas in relation to tax," she said.
She added that the complexity highlighted the need for clients to attain specialist SMSF advice when considering this investment option, adding specialist advisers were the only ones with the skill set to grasp the repercussions around LRBAs.
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