SMSF related-party LRBAs: ATO interest rate for 2023-24

For SMSF related-party limited recourse borrowing arrangements (LRBAs) used to acquire real property, the ATO’s safe harbour interest rate is 8.85% for 2023-24 (up from 5.35% for 2022-23).

Practical Compliance Guideline PCG 2016/5 sets the safe harbour interest rate each year according to the Reserve Bank Indicator Lending Rates for banks providing standard variable housing loans for investors (being the rate recently published for May immediately prior to the start of the relevant financial year). This Indicator Lending Rate for May 2023 is 8.85%. Accordingly, the ATO’s safe harbour interest rate is 8.85% for 2023-24 (10.85% for listed securities).

If an LRBA is structured in accordance with PCG 2016/5, the ATO will accept that the LRBA is consistent with an arm’s length dealing and the non-arm’s length income (NALI) rules (45% tax) will not apply to the income generated from the LRBA asset. If an LRBA does not meet the safe harbour rules, the SMSF trustees will need to otherwise demonstrate that their arrangement is consistent with an arm’s length dealing: see Determination TD 2016/16.