Self-managed super funds (SMSF) have until 30 June 2016 to conform to the ATO’s new rules on related party loans.
A guidance paper released by the Tax Office stated that related-party loans e.g. family trusts or private companies to SMSFs now must be at interest rates of 7.75 per cent for shares and 5.75 per cent for property.
The loan-to-value ratio must be 50 per cent for shares and 70 per cent for property. Originally, SMSF trustees were able to borrow at an interest rate that was less than what a bank would traditionally charge, meaning
more money could be kept in the super fund. Earnings on assets that are held by super funds are also taxed more favourably.
Income that is acquired from assets that fail to meet the ATO’s new requirements will be taxed at 47 per cent, which is the highest marginal rate. The new rules are designed to ensure funds are run for the sole purpose of providing super benefits to members when they retire. The Tax Office also wants to ensure loans are established and maintained on terms that are consistent with an arm’s length dealing.
An arm’s length transaction means that investments must be conducted on a commercial basis as if there was no relationship between the parties. For instance, the purchase price of an asset should be at market value.
For an asset that is publicly available, the arm’s length price would match the price advertised to the public. For assets that are not publicly listed, independent valuations should be obtained to ensure the market value is
adequately reflected in the purchase price. We trust you enjoy reading this article and find it of values. If you have any question regarding to the SMSF + related party loan, please contact our SMSF team. We are SMSF Specialist Accountant and members of the SMSF Association.
Susan Flux, Brisbane
Since that time I known Tony and his team at Lee and Lee, they have provided me with outstanding advice and services regarding my personal, family and especially my SMSF borrowing setup for wealth creation and tax reduction strategies that have since led to financial independence.
I now very clear and feel confident on my future financial goals and taxation strategies and know they can be achieved with Tony's expert and professional help.
Shukri Barbara, Property Tax Specialists Sydney
Tony has impressed me with his technical knowledge and execution. He works with honesty and integrity and is generous in his dealings.
John Mu, Internet Marketing Strategist Gold Coast
Tony has the strategies which are helping me legally minimise tax. He has helped me in my personal development and wealth creation to build a multimillion dollar property portfolio.
If you want a hands-on accountant who knows his stuff...Tony Lee is the man!