The ATO’s Safe Harbour Interest Rate for SMSF related party borrowing arrangements has been updated for the new financial year, officially decreasing to 8.95% from 9.35% for real property and to 10.95% from 11.35% for listed shares in the 2025/2026 financial year.

This adjustment is in line with Practical Compliance Guidelines (PCG) 2016/5 and was set by the Reserve Bank of Australia in May 2025.

How this happened

The rate is set by the Reserve Bank of Australia as its Indicator Lending Rate for banks providing standard variable housing loans for investors published in May each year.

Where a related party borrowing arrangement has been structured in accordance with the PCG, The Commissioner will accept that the arrangement is consistent with an arm’s length dealing and that the Non Arm’s Length Income (NALI) provisions do not apply. 

Why this update matters

Existing SMSF loan agreements that set the interest rate according to the PCG do not require updating. However, trustees should ensure that their amortisation schedules reflect the new rate. If a fixed interest rate period (up to five years) has expired, the agreement will revert to the variable rate as calculated under PCG 2016/5.

What action should SMSF Trustees and Advisors take?

To remain compliant, Trustees should:

• Review loan agreements to determine if they include a fixed rate and whether the fixed rate period has now ended
• Update amortisation schedules to reflect the new variable rate, if applicable
• Confirm that all terms continue to align with PCG 2016/5, including repayment frequency and Loan-To-Value ratio (LVR)

Safe Harbour Loan Parameters Under PCG 2016/5

The requirements of PCG 2016/5 are summarised below for quick reference.

Components	Real Property[1]	Listed Shares or Units
Interest Rate	RBA Indicator Leading Rates for banks providing standard variable housing loans for investors published in May each year.	RBA Indicator Leading Rates for banks providing standard variable housing loans for investors +2% published in May each year.
Fixed/ Variable	May be fixed for a period of up to 5 years but only from the commencement of the loan, otherwise the variable rate must be used.	May be fixed for a period of up to 3 years but only from the commencement of the loan, otherwise the variable rate must be used.
Term of Loan[2]	15 Year Maximum.  If refinancing, 15 years is reduced by the period of the former loan.	7 Year Maximum.  If refinancing, 7 years is reduced by the period of the former loan.
Loan to Value Ratio (LBR)	Maximum 70% LVR (all loans combined).	Maximum 50% LVR (all loans combined).
Security	Registered mortgage.	A registered charge/mortgage or similar security (that provides security for loans for such assets).
Personal Guarantee	Not required.	Not required.
Nature and Frequency of Payments[3]	Each repayment is of both principal and interest. Repayments are monthly.	Each repayment is of both principal and interest. Repayments are monthly.
Loan Agreement	A written and executed loan agreement is required.	A written and executed loan agreement is required.

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 Notes:

1 Unlike rates charged by bank lenders, there is no distinction between residential and commercial property. 

2 If refinancing, care needs to be taken to reduce the period of the new loan from the 15 year / 7 year maximum to take into account the period the loan being replaced has been in existence. 

3 Interest Only loans are not included under the Safe Harbour guidelines. 

 

 

Need help with SMSF Loan Documentation?

Speak to our Constitute team today. We’re always here to help, and we’re ready when you are.

If you want to discuss SMSF documentation with us, book a demonstration of our platform or order legal documents, just reach out via email info@docscentre.com.au or phone 1800 799 666.

Constitute offers a range of SMSF solutions, including the establishment of custodian trusts and limited recourse borrowing arrangements, that comply with the requirements of PCG 2016/5. 

Disclaimer: This article is for general information purposes only and does not constitute legal, accounting or financial advice in any context or application. It is also not intended as financial advice. You should seek independent professional advice relevant to your specific situation before acting or relying on any of the information contained herein.