Pay invoice
Order certificate

LRBA Safe Harbour Interest Rate Update: What SMSF Trustees and Advisers Need to Do for 2025–26 

23 Jun 2025
Written by:
Mark Ellem
Head of SMSF Education
Accurium

LRBA Safe Harbour Interest Rate Update: What SMSF Trustees and Advisers Need to Do for 2025–26

The updated safe harbour interest rates for Limited Recourse Borrowing Arrangements (LRBAs) for the 2025–26 income year have been published by the Reserve Bank of Australia (RBA) and we expect the ATO’s website will soon be updated to include the new rates. It is vital that SMSF trustees and advisers carefully review related party loan arrangements to ensure continued compliance with the ATO’s guidelines and avoid non-arm’s length income (NALI) consequences.

Why the Safe Harbour Rate Matters

When an SMSF borrows to acquire an asset under an LRBA, section 295-550 ITAA 1997 requires loan terms to be consistent with an arm’s length dealing. The ATO’s Practical Compliance Guideline PCG 2016/5 sets out the ‘safe harbour’ terms for related party LRBAs. As long as your SMSF structures LRBAs in line with these terms, the ATO will accept that the arrangement is on arm’s length terms, ensuring that the NALI provisions do not apply purely because of the borrowing arrangement.

A key safe harbour requirement is the loan interest rate. For real property assets, the interest rate is based on the RBA’s Indicator Lending Rate for banks providing standard variable housing loans for investors, using the May rate preceding the income year. If the asset is a collection of stock exchange-listed shares or units, the relevant rate is the May figure plus 2%.

LRBA Safe Harbour Rates for 2025–26

  • For LRBAs over real property:
    8.95% for the 2025–26 income year
    (down from 9.35% in 2024–25)
  • For LRBAs over listed shares or units:
    10.95% for the 2025–26 income year
    (down from 11.35% in 2024–25)

     

Action Required from 1 July 2025

If your SMSF’s related party LRBA uses the ATO’s safe harbour terms, you must update the loan repayments to reflect the new interest rate from the July 2025 payment. Review your loan schedule to ensure repayments are recalculated in line with the revised rate.

There is one important exception:
The safe harbour rules permit the interest rate to be fixed at the start of the LRBA, for up to five years for real property or three years for share/unit-backed arrangements. If your LRBA is within such a fixed rate period that commenced from the start of the loan, there is no requirement to adjust repayments until that fixed term ends.

Checklist for SMSF Trustees and Advisers

  • Assess all LRBAs with related party loans and the safe harbour rules are being relied upon to ensure interest rates reflect the 2025–26 safe harbour rate (unless under a valid fixed rate period);
  • Update loan repayment schedules where necessary;
  • Document all changes and retain evidence of compliance for audit purposes;
  • If unsure, seek specialist advice to mitigate compliance risk.

Further Education: LRBA In-Depth Webinar On Demand

For a comprehensive understanding of LRBA rules and compliance essentials, including structuring related party loans, managing NALI risk, and practical repayment strategies, access our on-demand webinar, Understanding limited recourse loans in an SMSF.

Key topics covered include:

  • The regulatory framework for LRBAs and how it impacts SMSFs;
  • Applying the ATO’s safe harbour provisions and avoiding NALI;
  • Setting and managing variable and fixed interest rates correctly;
  • Common pitfalls, audit observations, and practical compliance tips.

Purchase the on-demand recording here, and ensure your team stays up to date with the latest developments and compliance requirements.

If you require expert advice or further clarification, our technical team is here to help. Stay informed and proactive and keep your SMSF strategies compliant and robust for the year ahead.

Please note: This article provides general information only and should not be relied upon as tax or financial advice. For guidance tailored to your fund’s circumstances, consult a qualified adviser.

Search by keywords

Archive

Disclaimer
This information is general information only and not intended to be financial product advice, investment advice, tax advice or legal advice and should not be relied upon as such. As this information is general in nature it may omit detail that could be significant to your particular circumstances. Scenarios, examples, and comparisons are shown for illustrative purposes only. Certain industry data used may have been obtained from research, surveys or studies conducted by third parties, including industry or general publications. Accurium has not independently verified any such data provided by third parties or industry or general publications. No representation or warranty, express or implied, is made as to its fairness, accuracy, correctness, completeness or adequacy. We recommend that individuals seek professional advice before making any financial decisions. This information is intended to assist you as part of your own advice to your client. Use of this information is your responsibility. To the maximum extent permitted by law, Accurium expressly disclaims all liabilities and responsibility in respect of any expenses, losses, damages or costs incurred by any recipient as a result of the use or reliance on the information including, without limitation, any liability arising from fault or negligence or otherwise. While all care has been taken to ensure the information is correct at the time of publishing, superannuation and tax legislation can change from time to time and Accurium is not liable for any loss arising from reliance on this information, including reliance on information that is no longer current. Tax is only one consideration when making a financial decision.