The ATO is currently running a survey to determine the state of limited recourse borrowing arrangements (LRBA) within SMSFs to see whether the regulation of these strategies is sufficient.
The move is part of the federal government’s commitment to continually monitor these gearing arrangements after it rejected the Financial System Inquiry’s (FSI) recommendation to ban the use of LRBAs.
“They’re writing to 4000 self-managed super funds over November. Obviously those funds have previously lodged a return saying they have an LRBA and the ATO is asking various questions about that,” SuperConcepts technical services executive manager Mark Ellem revealed.
Participation is voluntary and while the motive behind the survey is to observe how the strategies are working, Ellem warned there could be other consequences for trustees arising out of the study’s findings.
“It’s not linked to compliance activity, but I’ve seen the questions and once the fund answers those questions, the tax office will be left in no doubt whatsoever whether [the LRBA] is a related-party loan, or an arm’s-length loan, [or matches] the safe harbour provisions,” he noted.
“So your clients may be receiving that, but there are around 560,000 SMSFs and it’s only 4000 picked for that survey, but it could be one of your clients that gets picked in that survey.”
He said the ATO would pass the results of the survey back to Canberra, enabling the government to perform its assessment of the situation on the third-year anniversary of the FSI.