Self-managed super funds (SMSFs) that receive zero interest loans from a fund member may need to unwind the arrangement or deal with the impacts of changing legislation, according to Macquarie Bank executive director David Shirlow.
Shirlow, speaking at the Institute of Chartered Accountants' National SMSF conference, said the Government had indicated it would review SMSF borrowing arrangements two years on from the Cooper Review, which concluded in December 2010.
He said as part of the review he expects the law to change on zero interest loans from fund members to SMSFs.
"We could have prevention of no interest loans under SIS [Superannuation Industry (Supervision) Act 1993] or changes to tax law such that discounted interest will be regarded as a contribution or income," he said.
At the June National Tax Liaison Group meeting, the Australian Taxation Office said it considered discounts as analogous to its contributions ruling, which found that if there was no increase in capital it was not considered a contribution, according to Shirlow.
He said SMSF trustees should be aware of the legislative risk of entering into a zero interest loan arrangement.
"While typically, if the law changes it won't have a retrospective impact on arrangements already in place, you do at least need to be aware that it may have a prospective impact on arrangements that have been put into place," Shirlow said.
He said, however, that lenders could gain access to capital, which was more appealing than trying to claw back contributions which were constrained by preservation.
Fund members could make a loan at any time for any amount, regardless of the age or work status of the client, Shirlow said – although administration charges were steep.
He said trustees should first consider using the non-concessional contributions cap.
