Can my SMSF loan money to me or my business?

As tempting as it may be to tap into your super for a personal or business loan, it’s generally a no-go zone, with limited exceptions. The following guide outlines what is and isn’t allowed and how to stay within the rules.

Can my SMSF lend me money?

No. Your self-managed super fund (SMSF) must not lend you or any of your relatives money. Making this type of loan must be avoided; it’s not a way of legally accessing super early via an SMSF.

There are specific rules that prohibit super funds, including SMSFs, from providing financial assistance to members or their relatives and these rules, set out in section 65 of the SIS Act, state:

The trustee or an investment manager of an SMSF must not:

• Lend money of the fund to:
  • A member of the fund
  • A relative of a member of the fund
• Give any other financial assistance using the resources of the fund to:
  • A member of the fund
  • A relative of a member of the fund.

Breaching this provision can lead to an administrative penalty of 60 units ($19,800) per trustee and can also result in disqualification from being a trustee of an SMSF.

Can my SMSF loan money to my business?

In general, loans to a business owned or operated by members of an SMSF are prohibited and can also result in administrative fines of up to $19,800.

It is important to understand that administrative penalties and fines must be paid personally by the trustees (or on behalf of the corporate trustee); they must not be paid by the SMSF.

In-house asset exception

There are, however, certain loans to a related party business that can be made under strict conditions. These related party loans are treated as in-house assets.

Where an SMSF is looking to make a loan to a related party, it is essential that these loans are established and maintained in accordance with the SIS rules and restrictions.

The key restrictions are:

• The loan is made to a company or a trust with a corporate trustee (not to a sole trader business or partnership)
• The amount of the loan will not result in the in-house assets exceeding 5% of total fund assets (based on market value). Note that there is a total limit of 5% for all of a fund’s in-house assets.
• The loan is on arm’s-length commercial terms
• The loan is allowable under the trust deed of the SMSF and is included as part of the investment strategy of the SMSF
• The loan does not breach the sole purpose test.

One key risk with these loans is that if the market value of other SMSF assets drops, the loan could exceed 5% of the fund’s total assets.

Where the value of the loan to the related party (i.e. the in-house asset) exceeds 5% of the fund assets at the end of the financial year, the trustee(s) of the SMSF must put in place a written plan to rectify the excess by the end of the next financial year.

For example, where a $50,000 loan is made to a related business in April 2025 (based on market value of total SMSF assets of $1 million), and the value of all assets drops to $900,000 as at 30 June 2025, then the SMSF trustees have an issue as the level of in-house assets will now exceed the 5% limit.

The trustees will need to make a written plan that sets out the following:

• How far above the 5% limit they are
• What steps they will take to reduce the level of in-house assets to get back below the 5% limit
• Carry out that plan.

In the above example, the SMSF trustees must reduce the loan amount to under 5% again – i.e. the $50,000 would need to be reduced to less than $45,000.

Interestingly, the ‘total assets’ of an SMSF does not include a loan under a limited recourse borrowing arrangement (LRBA), so an SMSF with a $1 million commercial property with a $600,000 loan outstanding would have total assets of $1 million, not $400,000, as the net asset amount.

In addition to the 5% limit applied to all the in-house assets of an SMSF, trustees need to ensure that all loans are entered into and maintained on an arm’s-length basis – i.e. the same rates, repayments and security as a loan from an unrelated lender. It is the responsibility of the trustee to be able to prove to the independent auditor of the fund, as well as (potentially) the ATO as regulator, that the loan is on arm’s-length commercial terms.

Setting up the loan

Different types of loans will have different characteristics and applicable interest rates, so it’s important that all the terms of the loan, including interest rate and loan security (collateral), reflect the level of risk attached to the loan.

Ensure the loan agreement, loan schedule and ancillary documents such as mortgages and registered charges are all correctly documented and executed. Wherever possible, automatic monthly principal and interest repayments should be set up from the business to the SMSF bank account, the same as a loan from a third-party lender would be.

In addition, the loan must be allowable under the SMSF trust deed, as well as included as part of the investment strategy of the fund, meaning both of these documents need to be reviewed and updated where necessary.

The sole purpose test

The sole purpose test is also important. Essentially, the sole purpose of an SMSF is to pay retirement income or death benefits to members or member beneficiaries of the fund. If a loan is being made to a related party company or trust, and then that money is subsequently paid out to the members of the SMSF or used to benefit them directly in anyway, the sole purpose test is likely breached and the trustee(s) may face significant penalties and compliance action from the ATO.