Tag Archives: Interest

Can You Lend Money To Your Smsf At A Low Interest Rate ?

A recent interpretative decision by the ATO (ATO ID 2010/162) has caused some comment in the self managed superannuation industry, as on first look it appears that it allows a related party of a SMSF (say a member, or a member relative) to lend money to a SMSF under a limited recourse borrowing arrangement, and to do so under terms that are favorable to the SMSF. For example, say a member of a SMSF lends money to their SMSF under a limited recourse borrowing arrangement, but only charges the fund a very low interest rate, well below the normal market “arms length” rate.

Firstly, lets look at the actual issue the ATO raised, as follows:

“Does a self managed superannuation fund (SMSF) trustee contravene section 109 of the Superannuation Industry (Supervision) Act 1993 (SISA) if it borrows money from a related party of the SMSF under a limited recourse borrowing arrangement on terms favorable to the SMSF?”

(Note: Section 109 of the SISA deals with the issue of transactions where the other party to the transaction is not at arm’s length to the SMSF e.g. a fund member. The provision requires that the terms and conditions of the transaction must not be more favorable to the other party than would be reasonably expected if the parties were at arm’s length.)

The ATO answer was no, this situation does not contravene section 109. Specifically :

“The terms cannot be more favorable to the related party than would have been the case had the parties been dealing at arm’s length, but there is no contravention of section 109 of the SISA if the terms are more favorable to the SMSF.

Do you see the distinction ? The related party cannot get favorable treatment, but the SMSF can.

In our example, say Jim lends money to his self managed super fund under a limited recourse borrowing arrangement, but only charges the fund 2% p.a. interest, when the going market rate if they had been dealing on an arms length basis was say 8% p.a.

Jim (as the other party) is no better off, as he is getting less interest than he normally would, but the SMSF is better off as it is paying less interest. This ATO decision is highlighting the fact that section 109 only deals with the fact that the “other party” (in this case Jim) cannot be better off, but there is no restriction on the SMSF being better off.

So does this mean its open slather on this sort of thing ?

Well, not necessarilly. You always have to remember with DIY superannuation funds, just because something is OK under one provision, it does not mean it is OK under all SIS provisions. What you may well find is that the difference between the actual rate charged, and the arms length market rate may be deemed as a contribution.

Townsends lawyers have the following to say about it, and we think its prudent counsel:

“The Interpretative Decision while technically correct suggests that s109 is in need of reform. And most likely will be reformed. While it is possible to shift value to the SMSF using s109, the ATO has also specified in TR2010/1 that shifting value to an asset owned by the provider is a contribution. (Though the concept of a deemed contribution, in the absence of any market value rules, is more in the mind of the Commissioner than supported by any legislative text). Alternatively, the Commissioner could treat the income arising from the asset acquired by the mates rates loan as being non-arms’ length income and taxed at 45%. There is more legislative substantive supporting this claim than the deemed contribution.

So before moving into mates rates loans, a close look at s295-550 of the Income Tax Assessment Act, 1997 is highly recommended.”

Get advice from SMSF Review to start your DIY Superannuation. Most comprehensive online resource dedicated entirely to educating SMSF trustees. For more information or to enjoy our free membership offer, visit SMSF.

Nomis Forum 2015 Drives Pricing Advantage Into the Mainstream; Banking Innovators Gather to Sharpen Pricing Skills Before Interest Rates Increase


San Francisco, CA (PRWEB) April 13, 2015

Nomis Solutions, global pricing and profitability technology provider for the financial services sector, is welcoming innovators in banking from all over the world to the 8th annual Nomis Forum beginning today at the Fairmont Hotel in San Francisco.

This year’s Forum’s theme is Keep Calm and Be Prepared. Experts from Nomis and banking industry executives are providing thought leadership and advice timed to help banks take advantage of changes in interest rates. The Forum also will address better ways for banks to compete as new business models begin to take shape from a wave of innovative market entrants including peer-to-peer lenders.

Nomis and its industry partners have been working to make price optimization a core competency of the banking industry. Interest in increasing bank capability in price optimization has never been stronger, signifying how this discipline is now becoming mainstream as the early majority of the market now joins the innovators. Nomis customers used the Nomis Price Optimization Suite to optimize $ 1 trillion dollars in assets and liabilities in 2014 alone. Since inception, Nomis technology has been used by Nomis’ banking customers to generate over $ 1 billion dollars in additional revenue, harvested primarily from deposit and lending products that were not priced effectively.

Nomis CEO, Frank Rohde, explains:

“Pricing innovation used to be a ‘nice-to-have.’ Now, with the expectation of rising interest rates, and the growth of disruptive new entrants into the banking sector, it’s a ‘must-have’ for banks if they want to compete effectively against both these new competitors and their traditional peers.

We’ve typically seen that once interest rates start moving, they change very frequently. The ability to price deposits, loans, and mortgages effectively in real time becomes vital to protecting and growing market share while pricing fairly.”

As in previous Forums, delegates are being given exclusive content, insight, and price innovation approaches for both lending and deposits.

“Nomis Forum is now a well-established event in the banking industry where the best of the best come to sharpen their pricing skills,” continued Rohde. “This year we are seeing an unprecedented number of new attendees who are now recognizing that price can be a key source of competitive advantage.”

Some of this year’s keynote speakers include:

Frank Rohde, Nomis CEO – Frank will discuss the drivers of pricing innovation and highlight how Nomis customers are optimizing these drivers to grow profitably.

Richard Swart PhD, University of California, Berkeley – Dr Swart will cover the growth of alternative finance models and explain what traditional banks need to do compete effectively.

Kenneth Flaherty, Huntington Bank – Mr Flaherty will discuss his own team’s case study revealing how he helped Huntington gain competitive advantage in its home equity products and the lessons learned.

Amelia Gini, Bank of Ireland UK – Ms Gini will cover how she and her team are leveraging price sensitivity modelling with scenario planning to provide effective forecasting for new customer acquisition as well as attrition in a low-rate environment.

Fred Brothers, Chief Innovation Officer, FIS – Mr Brothers will cover the broader banking technology landscape and how banks can innovate to compete against their traditional peers as well as new entrants.

Nomis Forum 2015 runs through Wednesday, April 15th. You can follow insights from the event in real time using the hashtag #NomisForum15.

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About Nomis

Nomis Solutions provides best-in-class pricing and profitability technology for financial services companies. By combining a big-data platform with advanced analytics, innovative technology, and tailored business processes, Nomis delivers quick time-to-benefit and improves financial and operational performance throughout the customer-acquisition and portfolio-management processes.

In 2014 Nomis customers optimized over $ 1 trillion in banking transactions, and since inception, our customers have generated over $ 1 billion in incremental profits.

Headquartered in San Bruno, CA, Nomis Solutions also has offices in Toronto and London. Visit http://www.nomissolutions.com or contact us at info(at)nomissolutions(dot)com or 1-650-588-9800 or +44 0207 812 7251.






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