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Peter Renner

Nov 28, 2020

SMSF not meeting its LRBA repayments

in SMSF Technical Forum

I have an SMSF that is having problems meeting its LRBA loan repayments as it is behind in its tax lodgements, become deregulation and cant receive contributions or rollovers.

At the moment the repayments are being rejected (or returned to the SMSF bank account) as the bank account falls into overdraft. This has happened on the regular basis during 2018FY, 2019FY and 2020FY. The rent doesn’t cover the monthly repayment and expenses of the property.

I believe that this is a breach of S67, S67A & B plus S82 (IHA now over 5% of net assets) and each rejected repayment is seen as a new borrowing.

Does anyone have any other opinions?

thank you

1 answer0 replies

Comments (1)

THE AUDITORS INSTITUTE

Feb 15, 2021

Hi Peter,

My view is that the non repayments are not new borrowings and would not be a breach of SIS by themself. The interest would continue to accrue in relation to the loan and it would be added to the loan amount as being payable by the Fund in the financial statements. This is supported by section 67A(1)(a)(ii) of SIS that allows for interest to be accrued re a LRBA. If the loan was with a related party and was not being conducted on an "arm's length basis" in accordance with the "safe harbor" provisions then this would be a breach of SIS. The bank account going into overdraft I agree would be a breach of the lending restrictions of SIS.

SMSF AAA