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I am auditing a fund that lent money to an unrelated party. It is a personal unsecured loan.
I have obtained evidence confirming the borrower is an unrelated party, and evidence to satisfy that the IHA rules and sole purpose test have been complied with. Investment strategy requirements have also been satisfied.
My issue is the loan agreement stipulated an interest rate of 3%. However, at the time of loan creation, while mortgage rates were 3%, personal unsecured loan interest rates were closer to 6% (per RBA data).
Is this a breach of arm's length rules? Given the loan's value was approximately $80,000, over 50% of the fund's assets, would this warrant an ACR based on arm's length rules?
Or is the value of the contravention based on the actual interest received vs what should've been received.
Thank you.
Thank you. Their rationale was that mortgage rates were 3% so it was a fair rate for this arrangement. I’m inclined to think a reasonable rate would’ve been the rate an unsecured personal loan from a bank, given this loan from the smsf is essentially an unsecured personal loan. Is that a fair assessment on my part? Or is basing it on mortgage rates reasonable?