“I quite often get the question as to whether we can apply these rules to units in an unlisted unit trust and unfortunately you can’t, so you need to demonstrate how the loan is on arm's length terms,” she said.

“From the safe harbour provisions, there is an interest rate that would need to be used. It's the RBA indicator lending rates for banks providing standard variable housing loans for investors, which is released each May, and the ATO always publishes this rate on the website. The rate for the 2025 financial year is 9.35 per cent and 11.35 per cent for listed securities”

Scott said a related party loan can be fixed or variable, but if it is fixed it can only be for up to five years, and the loan term cannot exceed 15 years.

“When you're looking at the term of the loan, if the SMSF is looking to refinance with a related party loan, if they have a loan with the bank and they're wanting to refinance, you need to take the loan term that's already expired into consideration when considering the 15-year term.”

“So, if you had a loan with the bank for five years and are now looking at refinancing with the related party, that loan could be longer than 10 years.”

She continued that the maximum loan value ratio is 70 per cent and includes all loans the SMSF may have.

“You couldn't have the SMSF borrow from the bank to pay for the 30 per cent deposit and then have a 70 per cent related party loan as it wouldn’t meet the LVR requirements,” Scott said.

Another commonly overlooked component of LRBAs and safe harbour provisions is the need for the property to have a registered mortgage.

“Clients often miss this step, so it’s important to make sure that if a client is in this type of scenario, they are getting a registered mortgage over the property that was purchased under the LRBA,” she said.

“There's no requirement for a personal guarantee, and the repayments must be made every month, and must include principal and interest.”

Scott continued that safe harbour provisions are just a guideline provided by the ATO, and the regulator is not necessarily stating that because the LRBA does not meet those requirements, NALI rules will apply to the property and sale.

“But what they do say in the PCG is that the trustees would need to otherwise demonstrate that the arrangement was entered into and maintained on terms consistent with an arm’s length deal,” she said.

“The ATO provides an example of a way of doing that – maintaining evidence showing that their particular arrangement is established and maintained on terms that replicate what the SMSF could have found from a commercial lender.”

This would require the SMSF to go to a commercial lender and see whether they would be offered the loan terms provided by the related party.

“It's my understanding that the ATO expects there to be an actual offer from that commercial lender to the SMSF to show those loan terms are on an arm’s length basis.”