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The new rate for real property has risen to 9.35 per cent from 8.85 per cent in 2023–24, a fraction of the 3 per cent rise that was implemented in the 2023–24 financial year.
Listed shares and units have also had only a 0.5 per cent rise from the previous year and are now sitting at 11.35 per cent. In four years, this rate has climbed from 7.10 per cent with the biggest increase implemented in the 2023–24 financial year.
David Busoli, principal of SMSF Alliance, said it is imperative that related party borrowing be properly administered to avoid a breach of the non-arm’s length rules.
“The reason for this is that the penalties are draconian and essentially all taxable income and capital gains from the property will be taxed at the top marginal rate of 45 per cent,” Busoli said.
“Once triggered this situation can never be fixed. It’s permanent. Note that it isn’t just the interest rate that’s relevant, it’s the loan conditions as well – including principal and interest term and security.”
Busoli said with the financial year drawing to a close, it is prudent for SMSF trustees to check that any such loan has been treated correctly, alongside taking measures to ensure the new interest rate is incorporated for next year.
“On a side note, I know that trustees often think their fund will be able to pay off the loan after they make planned non-concessional contributions at some time in the future,” he added.
“An obtuse and totally unjustified rule counts the balance of a related party loan as an asset for total super balance purpose potentially creating the absurd situation where the presence of the loan may, of itself, prevent the making of the contribution that would enable it to be paid out. Note that arm’s length loans are also caught by this provision, but not until the member’s benefits are unrestricted non-preserved.”
Keeli Cambourne
June 28 2024
smsfadviser.com