Lending Money from your Self Managed Superannuation Fund
by Ian Morella, Director of Accounting Services
Lending Money from your Self Managed Superannuation Fund
The Australian Taxation Office (ATO) has announced its targeting Self Managed Superannuation Funds (SMSF) that loan money to members. With this in mind, it’s important to remind you of what to be cautious of when lending funds from your SMSF.
Ensuring your loan is in your SMSF’s best interest
When your SMSF loans money to one of its members, the loan terms must comply with ATO regulations, and the loan must be in the ‘best interests’ of your retirement.
When a loan agreement is not in the best interest of your SMSF, there can be serious consequences. For example, if the loan set up in your SMSF includes discount loan rates or favorable terms, there could be implications from the ATO.
In addition to putting the benefits of your SMSF’s members at risk, your SMSF could be found to be non-complying by the ATO and consequently not qualify for concessional tax rates.
How your SMSF can lawfully loan money
If you intend on loaning money from your SMSF, you should:
- Put in place an appropriate written loan agreement and have it signed by all the parties involved
- Ensure the loan agreement specifies all the terms of the loan, such as:
o What the security for the loan is
o The repayment period
o When repayments will be paid
o The amount of the repayments
o The interest rate
- Ensure the interest rate and repayments are received by the SMSF according to the loan agreement
- Take appropriate action to protect the SMSF’s investment if the loan agreement is not followed
- Ensure the loan is sensible and does not put the SMSF’s members’ benefits at risk
- Ensure the conditions of the loan agreement do not provide the borrower with favorable terms
It’s important to note it is prohibited to loan money from your SMSF to a non fund member (ie: a relative of the member). Doing so is illegal and will incur serious repercussions.
If you are considering creating a loan arrangement within your SMSF, or would like more information on anything outlined in this article, call our office on 1300 726 082 and ask to speak with a John Hopkins Taxation Accountant or click here.