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Interest rate for SMSF loans set to rise under safe harbour terms

Despite the recent cut to official interest rates, an update in the ATO’s superannuation rates and thresholds indicates that the minimum interest rate for SMSF loans under the safe harbour terms will increase for the 2019–20 financial year.

     

 

The ATO recently updated its superannuation rates and thresholds to include the interest rate amount for the 2019–20 financial year for SMSFs that want to ensure their limited recourse borrowing arrangements (LRBAs) are consistent with the safe harbour terms outlined in Practical Compliance Guideline 2016/5.

Back in 2014, the ATO confirmed that borrowings on non-commercial terms from a related party could cause non-arm’s length income (NALI). In order to avoid NALI, SMSFs had to restructure their LRBAs to ensure they were consistent with an arm’s length dealing.

To assist SMSFs in restructuring their loans on arm’s length terms, the ATO released PCG 2016/5, which set out the safe harbour provisions for what it would consider to be commercial terms.

However, the ATO also confirmed in 2016 that if the safe harbour terms were not applied, the loan would not be subject to NALI if the SMSF could demonstrate that the terms of their loan were consistent with the terms that a commercial provider would offer. 

In a recent update, the ATO stated that the LRBA interest rate for real property assets under the safe harbour terms will rise to 5.94 per cent, up from the 5.80 per cent rate that was set for the 2018–19 financial year.

The LRBA interest rate for listed shares or units will increase to 7.94 per cent for the 2019–20 financial year, up from the 7.80 per cent set for this year.

Following the decision of the Reserve Bank to cut interest rates this month, Reserve Bank governor Philip Lowe stated the board wouldn’t rule out making further cuts to interest rates this year.

“Our latest set of forecasts were prepared on the assumption that the cash rate would follow the path implied by market pricing, which was for the cash rate to be around 1 per cent by the end of the year,” Mr Lowe said.

“There are, of course, a range of other possible scenarios and much will depend on how the evidence evolves, especially on the labour market.”

 

Miranda Brownlee
20 June 2019
smsfadviser.com

 


David Forrest Download David's Adviser Profile

David Forrest

Director
BEc (Acc), MBA, CPA, FFin

David has been in the Financial Services Industry for nearly 30 years. He was one of the founding Directors of the successful Financial Planning and Stockbroking Practice, Henderson Gregory Forrest, for a decade. Prior to that, he held senior roles in companies such as ING, KPMG Accountants and AMP. David was previously Chairman of OAMPS Superannuation Trustee Board and currently serves as an independent Board Director for several companies.

David’s extensive experience in all forms of superannuation, including Self Managed Super Funds (SMSF), Defined Benefit Funds, retirement funding through Account Based Pensions, stockbroking with a focus on Direct Share Investment, Taxation/Remuneration Planning, Centrelink, Aged Care and business management, equip him to advise expertly on all aspects of Financial Advice.

Those with a particular interest in superannuation/SMSFs, direct share investment, salary packaging or applying for the Centrelink Pension will find his knowledge and ability in formulating and implementing creative, logical and simple wealth creation strategies a valuable asset.

David maintains a strong personalised client service focus, providing tailored solutions for clients.

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David Forrest is an Authorised Representative of Integrity Financial (SA) Pty Ltd ABN 16 133 921 187 — AFSL No 334846

Michelle Forrest

Michelle Forrest

Business Finance Manager
B Bus (Acc), CPA

Michelle’s career has spanned across the Financial Services, Retirement Living and Aged Care industries working in the private sector, not for profit and more recently with the state government for over 20 years. Her experience extends to many facets of the financial services industry, having worked in superannuation administration, technical support and financial planning practice administration.

Commencing with AMP and subsequently working in commerce and accounting roles with companies such as Brambles, Adelaide Bank Retirement Services, ECH Inc and SA Health and Wellbeing, Michelle returns to financial services after working in practice financial management at Henderson Gregory Forrest. This wide range of experience from senior accounting and management roles has provided Michelle with a strong background in business administration.

With an astute financial acumen and keen interest in business improvement strategies, Michelle ensures the smooth running of the Integrity Financial Advisory practice providing valued management support to our personalised client service focus.

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Natasha Bartlett
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Jasmine Smith

Jasmine Smith

Client Service Manager

Jasmine has worked in the financial services industry for over 12 years in all areas of client administration, working with David since 2013.

Jasmine has extensive knowledge and experience in client service including implementation of advice, portfolio reporting, assisting with the establishment of Self Managed Super Funds (SMSFs), term deposit management and a long history of helping clients with their enquiries.

Jasmine’s attention to detail, yet gentle approach, means she is able to solve the trickiest of questions for our client community.

Jasmine has gained her Certificate III in Financial Services qualification.

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Merrilyn Smith

Senior Client Service Manager

Merrilyn has worked in the financial services industry for over 11 years in all areas of client administration, and is a new addition to our client services team, returning from Melbourne to join the team in June 2019.

Merrilyn has extensive knowledge and experience in client service including implementation of advice, managed fund administration, assisting with the establishment of Self Managed Super Funds (SMSFs) and process improvement for the previous practices she has worked with. Merrilyn’s experience with direct shares constitutes the other part of our administrative support for direct equity investments.

Merrilyn’s warm and caring nature continues to endear her to our clients and she has already established herself as a valued member of our team.

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