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Facts polar super is about to refinance loan from Non-Related Party (Latrobe) to the members as a Related Party. The members in their own name will borrow the funds, then on lend it to pay out Latrobe.
The value of the loan to be paid out / refinances is $300,000. That for 2023 year smsf interest rate to be charged is 5.35%. The members have secured a loan with a bank against their PPR residence for 3.8%. There is then a difference in lending % of 1.43%
We accept that the interest rate for 2023 year that must be charged by the members to the Polar smsf is 5.23% = $300,000 * 5.23% = $15,690. That is fully claimed as an expense in the smsf. That the interest on the money borrowed by the members of their PPR $300,000 * 3.8% = $11,400 is tax deductible to the members. That the excess interest of 1.43% $4,290 ($300,000 8 1.43) is to be regarded as taxable income in the members 2023 individual tax returns.
Please confirm my understanding as above is correct.
That the 1.43% is taxable income to the members.
That such an arrangement with correct documentation is an acceptable arrangement and will not contravene smsf law.
That term of loan from a Related Party is 15 years.
2. Correct, The interest charged by the members ($15,690) will be taxable. The members will be eligible for a tax deduction for the interest they paid ($11,400). Therefore the taxable income will be ($4,290)
3. Yes, correct documentation is key
4. Variable interest rate loan (re-financing) - maximum loan term is 15 years less the duration(s) of any previous loan(s) relating to the asset
Toby