Further to the recent Australian Taxation Office (ATO) release of two ATO Interpretative Decisions, ATO ID 2014/39 and ATO ID 2014/40, as outlined in a recent Sladen Snippet, the ATO has released further information on what factors will be considered when applying the non-arm’s length income (NALI) rules to non-commercial limited recourse borrowing arrangements (LRBAs).
The ATO has effectively required super fund trustees to collect and keep benchmark information confirming that their related party loans are comparable to those available from non-related lenders. The ATO has indicated that the following factors should be benchmarked when making such a comparison:
- nature of the acquirable asset
- amount borrowed
- term of the loan
- loan-to-value ratio
- interest rate charged, or the other means by which the lender is compensated for the opportunity cost in lending the principal
- regularity and frequency of principal repayments required
- security taken for the borrower’s performance under the loan, given the limited recourse nature of the loan – for example, mortgages and personal guarantees by self-managed superannuation fund (SMSF) members
- extent to which the loan has operated in accordance with its terms.
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