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Date of article: 11 April 2016
Last updated: 11 April 2016

ATO guidance for LRBA related party loan (safe harbour - listed securities)

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Listed securities

'Safe harbour' terms that applies to listed securities.


Interest Rate Reserve Bank of Australia Indicator Lending Rates for banks providing standard variable housing loans for investors plus 2%. Applicable rates:
- For the 2015-16 year, the interest rate is 5.75% + 2% = 7.75%
- For the 2016-17 and later years, the rate published for May plus 2% (the rate for the May before the relevant financial year)
Fixed / variable Interest rate may be variable or fixed
- Variable - uses the applicable rate (as set out above) for each year of the LBRA
- Fixed - trustees may choose to fix the rate at the commencement of the arrangement for a specified period, up to a maximum of 3 years (see 'Term of the loan' below). The fixed rate is the rate for May plus 2% (the rate for the May before the relevant financial year)

The 2015-16 rate of 7.75% may be used for LRBAs in existence on publication of these guidelines, if the total period for which the interest rate is fixed does not exceed 3 years (see 'Term of the loan' below)
Term of the loan Variable interest rate loan (original) - 7 year maximum loan term

Variable interest rate loan (re-financing) - maximum loan term is 7 years less the duration(s) of any previous loan(s) relating to the collection of assets

Fixed interest rate loan - a new LRBA commencing after publication of these guidelines may involve a loan that has a fixed interest rate set at the beginning of the arrangement. The rate may be fixed up to for a maximum of 3 years, and must convert to a variable interest rate loan at the end of the nominated period. The total loan term cannot exceed 7 years.

- For an LRBA in existence on publication of these guidelines, the trustees may adopt the rate of 7.75% as their fixed rate, provided that the total period of the fixed rate does not exceed 3 years. The interest rate must convert to a variable interest rate loan at the end of the nominated period. The total loan cannot exceed 7 years.
Loan to Market Value Ratio (LVR) Maximum 50% LVR If more than one loan is taken out to acquire (or refinance) the collection of assets, the total amount of all those loans must not exceed 50% LVR.

The market value of the collection of assets is to be established when the loan (original or re-financing) is entered into.

For an LRBA in existence on publication of these guidelines, the trustees may use the market value of the asset at 1 July 2015.
Security A registered charge/mortgage or similar security (that provides security for loans for such assets)
Personal guarantee Not required
Nature & frequency of repayments Each repayment is of both principal and interest

Repayments are monthly
Loan agreement A written and executed loan agreement is required

What you need to do

If you have an existing LRBA with a related party loan, you should seek advice or contact us to review the arrangement to ensure that the arrangement will be maintained on terms consistent with an arms' length dealing going forward.

There is a short time frame to have the LRBA loan meet the ATO Guidance. The ATO has stated that the LRBA loan arrangement must meet the Guidance requirements by 30 June 2016.

Superannuation Accounting Services can provide you with advice and help you with documentation, including loan agreement that meets the Guidance requirements, working with you on LVR and interest rates.

 

Do you need help with your situation or if you wish to discuss the above, please contact us. Our contact details.