Awan Hammad

    Hi SP

    The Guidelines state at paragraph 7 (re real property) that:

    “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 (for both residential and commercial).”

    15 year term related party variable loan can only be obtained for an original related party loan.

    Also refer Option 1 in the guidelines (& the bolded part):

    “Option 1 – Alter the terms of the loan to meet guidelines

    25. The SMSF and the lender could alter the terms of the loan arrangement to meet Safe Harbour 1 for real property (see paragraph 6 of this guideline).

    26. To bring the terms of the loan into line with Safe Harbour 1, the trustees of the SMSF must ensure that:

    • The 70% LVR is met (in this case, the value of the property at 1 July 2015 may be used). Based on a property valuation of $643,000 at 1 July 2015, the maximum the SMSF can borrow is $450,100. The SMSF needs to ensure that required payments of principal and interest are actually made and brought up to date by 31 January 2017.
    • The loan term cannot exceed 11 years from 1 July 2015. The SMSF must recognise that the loan commenced four years earlier. An additional 11 years would not exceed the maximum 15-year term.
    • The SMSF can use a variable interest rate. Alternatively, it can alter the terms of the loan to use a fixed rate of interest for a period that ensures the total period for which the rate of interest is fixed does not exceed five years. The loan must convert to a variable interest rate loan at the end of the nominated period.
    • The interest rate of 5.75% per annum applies from 1 July 2015 to 30 June 2016. Calculation of interest payable for the purposes of making required payments of principal and interest must take into account the opening balance of $500,000, the remaining term of 11 years and the timing of the capital repayment.
    • The new LRBA must continue under terms complying with the ATO’s guidelines relating to real property at all times. For example, the SMSF must ensure that it updates the interest rate used for the loan on 1 July each year (if variable) or as appropriate (if fixed) and make monthly principal and interest repayments accordingly.”




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