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ATO imposes stricter guidelines for SMSF borrowing

John La Rocca

The loan-to-value ratio must be 50 per cent for shares and 70 per cent for property.
Originally, SMSF trustees were able to borrow at an interest rate that was less than what a bank would traditionally charge, meaning more money could be kept in the super fund. Earnings on assets that are held by super funds are also taxed more favourably.
Income that is acquired from assets that fail to meet the ATO’s new requirements will be taxed at 47 per cent, which is the highest marginal rate.
The new rules are designed to ensure funds are run for the sole purpose of providing super benefits to members when they retire. The Tax Office also wants to ensure loans are established and maintained on terms that are consistent with an arm’s length dealing.
An arm’s length transaction means that investments must be conducted on a commercial basis as if there was no relationship between the parties.
For instance, the purchase price of an asset should be at market value. For an asset that is publicly available, the arm’s length price would match the price advertised to the public.
For assets that are not publicly listed, independent valuations should be obtained to ensure the market value is adequately reflected in the purchase price.

For more information, please contact: 

John La Rocca
Director - Taxation Consulting
+61 3 9608 0171