Limited Recourse Borrowing Arrangement (LRBA)

ATO issues new ruling on LRBA non-arm’s length income: TD 2016/16

The ATO has issued a new Taxation Determination, TD 2016/16, setting out when a non-arm’s length Limited Recourse Borrowing Arrangement could result in Non-Arm’s Length Income. The ATO has also withdrawn two earlier Interpretative Decisions, ATO ID 2015/27 and ID 2015/28, which dealt with Non-Arm’s Length Income (NALI), as “issue is… Read More »ATO issues new ruling on LRBA non-arm’s length income: TD 2016/16

Safe harbour provision for low interest rate SMSF LRBAs

safe harbour, Non-Arm's Length Income (NALI), low interest, zero interest, SMSF borrowing, LRBAsIn order to remove uncertainty surrounding low, or zero, interest rate LRBAs and the non-arm’s length income rules the Government should create a safe harbour provision.

It is unclear where the idea for 0% interest rate LRBA started, through the June 2012 meeting of the superannuation technical National Tax Liason Group was likely a key point. In this meeting the ATO was asked if zero interest rate LRBAs would breach the borrowing rules. The answer was no, but the minutes do not record if the discussion included consideration of the Non-Arm’s Length Income (NALI) rules.

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ATO tips to avoid misreporting LRBAs in SMSF Annual Return

ATO tips LRBA errors, misreporting, SMSF Annual ReturnWith only a couple of months until all 2013/14 SMSF annual returns should be lodged the ATO has issued several “tips” to help to avoid misreporting Limited Recourse Borrowing Arrangements (LRBAs) in the SMSF Annual Return.

The ATO warns that, where an SMSF has a LRBA, to “make sure you report them at the LRBA labels in Section H: Assets and liabilities of the SAR [SMSF Annual Return].”

“We have noticed some misreporting at these labels,” said the ATO.

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Draft look-through rules for SMSF LRBAs, instalment warrants

Treasury draft look-through rules for instalment warrants and SMSF LRBAs (Limited Recourse Borrowing Arrangements)

Update: The Tax and Superannuation Laws Amendment (2015 Measures No. 2) Bill 2015, including look-through tax treatment for SMSF LRBAs, has passed both houses of Parliament. The bill may have changed since the draft was released. Treasury has yet to publish consultation submissions received.

The Treasury has released an exposure draft of legislation to enact ‘look-through’ tax treatment of instalment warrants, including SMSF Limited Recourse Borrowing Arrangements (LRBAs).

The draft bill would amend the Income Tax Assessment Act 1997 to look-through an instalment warrant or LRBA trust so that all income tax consequences of the underlying asset would flow-through to the investor, not the trustee.

The Treasury says that “long-standing industry practice” has been to ignore the trust structure in instalment warrants and LRBAs, and treat the investor as the owner of the asset. The purpose of the exposure draft is to “remove any uncertainty about how the law applies.”

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ATO ID 2014/39, 2014/40: 0% interest LRBAs & non-arm’s length income

The ATO has issued two decisions dealing with 0% interest rate Limited Recourse Borrowing Arrangements (LRBAs) leading to non-arm’s length income, ATO ID 2014/39 and ATO ID 2014/40. Update: the ATO has withdrawn these decisions, replacing them with ATO ID 2015/27 and 2015/28. Concern over 0% interest-rate LRBAs grew earlier… Read More »ATO ID 2014/39, 2014/40: 0% interest LRBAs & non-arm’s length income