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.
Non-Arm’s Length Income (NALI)
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 Update: the ATO has withdrawn these decisions, replacing them with ATO ID 2015/27 and 2015/28.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
In April the ATO surprised some when it issued a Private Binding Ruling (PBR) that said a 0% LRBA arrangement would result in the income earned from the asset being non-arm’s length income, and so taxed at 45%.
Since then the ATO has issued a number of further rulings with the same finding, indicating that it is a broader view held by the ATO rather than one only applicable to the individual situations of a particular case. Some of these private rulings seem to be for arrangements already in place, perhaps by SMSF trustees concerned that their strategies might not have the desired result?