New Safe Harbour rates spark funds reviews

Jun 27, 2019, 14:08 PM

The recent safe harbor rates benchmark has raised the opportunity for trustees to review their current finance rates, according to an SMSF expert.

The RBA has recently published the latest Standard investor interest rate for residential property as at May 2019 as 5.94%, up from 5.80% used for 2018/19.

This rate is used for the Limited Recourse Borrowing Arrangement “Safe Harbour” rate under ATO PCG 2016/5. 

“We’re seeing a lot of enquiries from trustees and administrators wanting to know their options around lowering the rates and expenses incurred by funds given the rates elsewhere in the market,” said Phil LaGreca, SuperConcepts Executive Manager of SMSF Technical and Strategic Services.

“Everyone has seen the RBA recently moved the official cash rate down from 1.5% to 1.25%.

“So even though official rates are falling, and could possibly fall further, it looks likely that rates for SMSFS with related party loans will be charged higher interest if they follow the guidelines. 

“We recommend trustees look around for the best deal possible in light of this new revision to ensure their funds are getting a bigger retirement benefit by paying lower expenses.

“A lot of the banks have pulled out of LRBAs but the gap is being filled by smaller providers who are trying to establish themselves with competitive offers. 

“Another question is whether the annual benchmark review is relevant given the quarterly official rates revision tends to trigger changes in commercial rates.

“Safe Harbour annual revisions are done annually for simplicity, but ultimately trustees and their advisers have a Best Interest Duty to the fund or client, and that should provide a more active involvement in ensuring that the fund incurs the least amount of expenses,” said Mr LaGreca.  

Media contact: 
Garth Montgomery