If you have a limited recourse borrowing arrangement (LRBA) in place involving a superannuation fund and a related party you have between now and 30 June 2016 to put the arrangement onto compliant footing if you want to avoid ATO audit activity for 2015 and prior years.

The ATO signalled in 2015 its new view that LRBAs involving related party lenders might be treated as giving rise to 'non-arm's length income' that is taxable at 47% rather than the ordinary rate for a fund of 15% (or 0% for a fund in pension phase).

On 6 April 2016 the ATO published Practical Compliance Guidelines PCG 2016/5 which sets out new "safe harbour principles" for LRBAs. If you make your arrangement fall within their safe harbour principles by 30 June 2016 the ATO say that they will not take any compliance action in relation to 2015 or earlier income years.

Bringing the arrangements within the safe harbours will likely involve setting new terms and re-drafting the LRBA arrangements.

What to do next?

You should urgently review all clients that have a LRBA involving a SMSF and a related party, and let us know if you want us to prepare documents to enable the loans to be refinanced.