The interest rate to be applied to related party limited recourse borrowings, arranged under the safe harbour provisions, has changed for 2025. It’s included in the table below.
| Financial Year | For Real Property | For Listed Shares/Units |
| 2024/25 | 9.35% | 11.35% |
| 2023/24 | 8.85% | 10.85% |
| 2022/23 | 5.35% | 7.35% |
| 2021/22 | 5.10% | 7.10% |
It’s imperative that related party borrowings be properly administered to avoid a breach of the non-arm’s length rules as the penalties are draconian. Essentially, all taxable income and capital gains from the property will be taxed at the top marginal rate. Once triggered this situation can never be fixed. It’s permanent. Note that it isn’t just the interest rate that’s relevant, it’s the loan conditions as well – including principal and interest term and security.
As the financial year draws to a close it is prudent to check that any such loan has been treated correctly this year as well as taking measures to ensure the new interest rate is incorporated for next year.
On a side note, I know that trustees often think their fund will be able to pay off the loan after they make planned non-concessional contributions at some time in the future. An obtuse and totally unjustified rule counts the balance of a related party loan as an asset for total super balance purpose potentially creating the absurd situation where the presence of the loan may, of itself, prevent the making of the contribution that would enable it to be paid out. Note that arm’s length loans are also caught by this provision, but not until the member’s benefits are unrestricted non-preserved.
