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SMSF deadline approaches for limited recourse borrowing arrangements

SMSF trustees have until 31 January 2017 to review their limited recourse borrowing arrangements (LRBAs) to ensure they are consistent with an arm’s length dealing, or alternatively brought to an end if they are not.

The Tax Office recently provided further guidance to SMSF trustees on when the non-arm’s length income (NALI) provisions apply to an SMSF’s LRBA in their Practical Compliance Guideline (PCG 2016/5) and Taxation Determination (TD 2016/16).

When determining whether the NALI provisions apply, SMSF trustees must recognise it is a two-step process. First, it needs to be determined whether:
1. The terms of the LRBA are consistent with the safe harbours in PCG 2016/5
2. The SMSF trustee can otherwise demonstrate that they are arm’s length.

If the borrowing arrangement is on arm’s length then SMSF trustees do not have to consider TD 2016/16 and the ATO will not apply the NALI provisions.

However, trustees with an LRBA on terms that are non-arm’s length will need to consider TD 2016/16. Trustees will need to consider the second limb of the NALI provisions and whether or not the income the fund obtains under the arrangement is greater than it would otherwise have been.

SMSF trustees should be aware that TD 2016/16 is not an alternative to the safe harbours set out in PCG 2016/5 and only applies if borrowing terms of an LRBA are non-arm’s length.

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What Are The Consequences Of Improperly Lodged Tax Returns?

May 4, 2021

With tax return season approaching quickly this year, you may have already started looking into lodging your income tax return. Ensuring that your details are correct and that any information about your earned income from the year is lodged is the responsibility of the taxpayer and their tax agent. However, if during this income tax return process the tax obligations of the taxpayer fail to be complied with, the Australian Taxation Office has severe penalties that they can enforce.

Australian taxation laws authorise the ATO with the ability to impose administrative penalties for failing to comply with the tax obligations that taxpayers inherently possess.

As an example, taxpayers may be liable to penalties for making false or misleading statements, failing to lodge tax returns or taking a tax position that is not reasonably arguable. False or misleading statements have different consequences if the statement given results in a shortfall amount or not. In both cases, the penalty will not be imposed if the taxpayer took reasonable care in making the statement (though they may still be subject to another penalty provision) or the statement of the taxpayer is in accordance with the ATO’s advice, published statements or general administrative practices in relation to a tax law.

The penalty base rate for statements that resulted in a shortfall amount is calculated as a percentage of the tax shortfall, or in the case of no shortfall amount, as a multiple of a penalty unit. This percentage is determined by the behaviour that led to the shortfall amount or as a multiple of a penalty unit, which are as follows:

If a statement fails to be lodged at the appropriate time, you may be liable for a penalty of 75% of the tax-related liability if:

To ensure that the statements, returns and lodgements are done correctly, and avoid the risk of potential penalties, contact us today. We’re here to help.