The ATO has effectively given SMSFs with non-commercial LRBAs a period of grace to either restructure the terms of the arrangement so that they are on commercial terms or to wind up the arrangement. The period of grace ends on 30 June 2016. It seems the ATO is adopting a “we will not ask” and “you do not have to tell us” attitude until 30 June 2016. However, if a non-commercial LRBA is on foot after 30 June 2016 the ATO will be asking and SMSF trustees will have to be telling.
While the ATO will not be allocating compliance resources to detect current or completed non-commercial LRBAs before30 June 2016, if the ATO is otherwise investigating an SMSF, the ATO is likely to investigate any current or completed LRBAs to determine whether the terms of the LRBAs were non-commercial and, if so, to treat the income derived from the arrangement as non-arm’s length income taxable at the maximum marginal rate for the relevant financial years – whether or not the SMSF was in pension phase.
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