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.