The deadline for the safe harbour rules for self-managed superannuation fund (SMSF) with limited recourse borrowing arrangements (LRBAs) from related parties is approaching and many have not complied with the rules, a law firm warns.
Cooper Grace Ward said in order for clients to comply with the safe harbour guidelines outlined in the PCG 2016/5 advisers must ensure the related party loans are on arm's length terms before 31 January, 2017.
The firm said the loan must before the deadline be on terms consistent with the PCG 2016/5 or a loan from an arm's length lender, and supported by a registered mortgage or security over the acquired asset.
Cooper Grace Ward partner, Clinton Jackson, said if advisers still had not yet reviewed or updated their clients' related party loans they needed to take urgent action to ensure the non-arm's length income rules would not apply to the SMSFs because of the loan terms.
"We have seen many LRBAs with related party loans that do not comply with the rules for other reasons," he said.