Following the release of two interpretive decisions on nil interest borrowings late last year, the ATO has confirmed how it will be dealing with pre-existing arrangements moving forward.
The ATO issued ATO ID 2014/39 and ATO ID 2014/40 in December last year. Both decisions confirm that nil interest borrowings from related parties can cause non-arm’s length income (NALI).
The industry has since lobbied for further clarity on what SMSFs with non-commercial arrangements in place prior to the release of the ATO IDs should do to remain compliant, and if there was an official grace period to re-structure these arrangements.
SMSF trustees are expected to have these arrangements on commercial terms by 30 June next year, the ATO announced at AMP’s SMSF In Practice conference in Sydney on Monday.
“For some time now the ATO has flagged its concerns about LRBAs with related parties that are structured on non-commercial terms. However, the commissioner recognises that the review and restructure of these types of arrangements can take time,” an ATO spokesperson told Mortgage Business's sister publication SMSF Adviser.
“Therefore, the commissioner will not allocate resources to undertaking any compliance activities or actions in relation to those arrangements provided commercial terms are in place by 30 June 2016.
This timeframe is intended to allow funds sufficient time to further consider their particular circumstances and arrangements and, if necessary, to restructure arrangements on commercial terms without detriment.”