Related party loans to SMSF’s have been a hot topic over the last few years with the ATO expressing differing and often confusing views.
Recent ATO releases confirm that the ATO will consider non-arms length related party loans would be taxed at the top marginal rate and not the 15% concessional rate.
To qualify for 15 % concessional rates the Trustee needs to ensure the loan is arms length and this can be proved by proper documentation and the ongoing operation of the loan.
The criteria considered by the ATO in determining the arm’s length nature of a related party loan includes the following:
- Nature of the acquirable asset;
- Amount borrowed and term of the loan;
- Interest rate charged; and
- Terms and conditions of the loan including repayments.
Consideration should be given to reviewing the terms and conditions of existing loans to ensure that they meet the arm’s length criteria. There is no set approach by the ATO; though compliance with the criteria is critical.