SMSFs and related-party LRBAs: PCG 2016/5 updated 

On Monday 21 March 2022, the ATO updated Practical Compliance Guideline PCG 2016/5 on when the non-arm’s length income (NALI) provisions will not apply to SMSF related-party limited recourse borrowing arrangements (LRBAs). PCG 2016/5 sets out the ATO safe harbours under which existing related-party LRBAs will be treated as being consistent with an arm’s length dealing.

The ATO has added a new para 17A to confirm that the Commissioner will not apply compliance resources in relation to the NALI provisions in s 295-550 of the ITAA 1997 for income derived by the SMSF for the 2018-19 and later income years from an asset that is subject to an LRBA, provided that the SMSF satisfies the conditions set out in the Guideline. Other minor updates to PCG 2016/5 align it with the current ATO style.