Awan Hammad

    Hi CV

    Agree they should get specialist advice as there are a number of issues.

    Re the LRBA on the hanger then as per the ATO guidlines in PCG 2016/5 the ATO advises what terms would be consistent with an arm’s length dealing.

    If the terms are outside of the ranges as per the guidline PCG 2016/5 paragraph 4:

    “If SMSF trustees have entered into an arrangement which does not meet all of the ‘Safe Harbour’ terms set out in this Guideline, while the trustees are unable to be assured that the Commissioner will accept the arrangement to be consistent with an arm’s length dealing, it does not mean that the arrangement is deemed not to be on arm’s length terms. It merely means that there is no certainty provided under this Guideline. The trustees will need to be able to otherwise demonstrate that the arrangement was entered into and maintained on terms consistent with an arm’s length dealing. One example of how a trustee may demonstrate this is by maintaining evidence that shows their particular arrangement is established and maintained on terms that replicate the terms of a commercial loan that is available in the same circumstances.”

    It may be hard to argue that the trustees could get a loan on a commercial basis if it was 100% geared. Similarly with the interest rate the trustees would want to be able to show that they could get a similar interest rate with another lender.

    Yes an LRBA can be done over shares or units in a unit trust. If a LRBA was to be considered over shares or units legal advice should be obtained.




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