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Campbell McCart

Nov 03, 2022

Lending To Fund Residential Property

in SMSF Technical Forum

Polar smsf has 2 members and currently have a residential property under LRBA with a loan from Non Related Party = Latrobe. They feel the interest rate being charged by Latrobe is excessive and wish to refinance. They have a broker that will lend to them as individuals. They will then lend the money to the smsf and become a Related Part lender.

1. What is the minimum interest rate for the 2023 year must the Related Party lender be charging the smsf?

2. What happens if the minimum rate the smsf is being charged by the related party for example 5% exceeds, what the related party is being charged from the bank for example 4%. Does this 1% breach the sole purpose test?

3. If the lender to the related party charges 4% to the individuals, the individuals then charge 4% to the smsf. Effectively round robin the loan. Is there an issue, what is breached and how do we overcome it.

1 answer0 replies

Comments (1)

THE AUDITORS INSTITUTE

Nov 03, 2022

Hi Campbell

The LRBA related party "safe harbour" interest rate for real property for the 2022/23 year is 5.35%.

The rates can be obtained at:

www.ato.gov.au

Key superannuation rates and thresholds

Rates and thresholds apply to contributions, employment termination payments, super guarantee and co-contributions.

I am not aware of any issue with a related party lending to a SMSF if they use the safe harbour rates (& follow the guidelines). In my view the auditor does not need to consider the rate that the related party is paying to access the money to be able to lend to the SMSF.

The trustees if they are doing a related party LRBA loan need to make sure they comply with:

PCG 2016/5

Income tax - arm's length terms for Limited Recourse Borrowing Arrangements established by self-managed superannuation funds

https://www.ato.gov.au/law/view/document?DocID=COG/PCG20165/NAT/ATO/00001&PiT=99991231235958

Thanks

SMSF AAA