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ATO reconsiders LRBAs and the NALI risk

Publication date: 15 Nov 16 | Source: CCH TAX WEEK

Issue: Issue 44, 4 Nov 2016

Pages: pp. 1-4


The ATO recently issued Taxation Determination TD 2016/16 which confirms its view that where a self managed superannuation fund (SMSF) trustee enters into a limited recourse borrowing arrangement (LRBA) on non-arm’s length terms, it is necessary to consider whether the SMSF has derived more ordinary or statutory income under the scheme than it might have been expected to derive had the parties been dealing with each other at arm’s length in relation to the scheme. Non-arm’s length income (NALI) will only arise in those cases where the answer to this question is affirmative.

SMSF trustees with related party LRBAs have until 31 January 2017 to ensure that each LRBA is either benchmarked to the LRBA guidelines provided by the ATO in PCG 2016/5 or arm’s length benchmark evidence has been obtained to support the terms of their arrangement. This benchmark evidence should demonstrate that the parties are dealing on arm’s length terms and preferably in the future it should include by cash flow projections.

This article gives an overview of TD 2016/16.

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Author profiles

Daniel Butler CTA
Photo of author, Daniel BUTLER Daniel is one of Australia’s leading SMSF lawyers and has worked predominantly in the SMSF, tax and related fields for over 30 years. He is a regular presenter on SMSF topics and has published extensively in professional journals including contributing a monthly article on SMSFs to the Taxation in Australia and other media. Dan is a member of the Tax Institute’s National Superannuation Committee and is involved with a number of other tax and SMSF committees and discussion groups. Dan also presents on the subject Taxation of Superannuation at the University of Melbourne’s Master of Laws/Tax program. Dan is also a Specialist SMSF Advisor. - Current at 04 August 2020
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Rebecca James
Rebecca James, of DBA Lawyers, is an experienced self-managed superannuation fund lawyer, with expertise in advising accountants, financial planners, trustees and financial institutions on superannuation and taxation law matters. She is well known for providing practical and commercially focused advice on all aspects of operating an SMSF, as well as providing superannuation, estate planning and taxation advice. Rebecca has presented for various organisations, including The Tax Institute and the SMSF Association. Rebecca holds a Master of Laws from the University of Melbourne as well as being a Specialist SMSF Advisor. - Current at 04 August 2016
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