Q: My wife and I have an SMSF which purchased a federal government tenanted commercial property in December 2015 using a bank supplied limited recourse borrowing arrangement (LRBA).
This was a comparably expensive financing solution so we recently borrowed funds outside of our SMSF using property owned by our family trust. We then lent this new bank loan to our SMSF to pay out the bank LRBA.
The interest rate dropped from 5.7 per cent variable to 2.09 per cent principal and interest fixed for four years, a major cost saving. We now have an LRBA between my SMSF and my family trust.
I would like to know what rate of interest my family trust should be charging my SMSF for this financing facility. As the new loan is exclusive to our LRBA arrangement, can we simply “label” it as our SMSF loan and treat it as such.