Self Managed Superannuation Funds (SMSF) and Lending

Has your SMSF loaned money? If so, make sure the loan terms comply with the law and are in the best interests of your retirement.

The ATO is concerned some trustees are lending money from their fund to people who provide advice or assist in the running of the fund. This may not be in the best interest of your SMSF, and may place your retirement savings at risk.

When a loan agreement is not in the best interest of your SMSF - for example, when you have given discount loan rates or favourable terms - this could have serious consequences. In addition to putting your member's benefits at risk, your SMSF could be found to be non-complying and would, therefore, not qualify for concessional tax rates.

 

Before lending any money, you should consider your fund's investment strategy.

If you still decide to go ahead and lend money from your SMSF, you should:

l  Put in place an appropriate loan agreement and have it signed by all the parties involved

l  Ensure the loan agreement specifies all the terms of the loan, such as

Ø  what the security for the loan is

Ø  the repayment period

Ø  when repayments will be paid

Ø  the amount of the repayments

Ø  the interest rate

l  Ensure the interest and repayments are received by the fund according to the loan agreement

l  Take appropriate action to protect the fund's investment if the loan agreement is not followed

l  Ensure the loan is sensible and does not put the members' benefits at risk

l  Ensure that the conditions of the loan agreement do not provide the borrower with favourable terms.

Remember that you are the one ultimately responsible for running your SMSF, and you must make sure you understand your duties, responsibilities and obligations.

Get ready For the Post-Christmas Cash Flow drought….7 ways to stay ahead!

The global financial crisis is squeezing credit and bank overdrafts and trade payments have been slowing. Therefore, small businesses should support themselves for an economic slowdown in the wake of chaos in international finance markets and a decrease in the value of the Australian dollar. They should be keeping a close watch on cash flow, considering the most appropriate finance options and improving administration processes. Here are some helpful tips to help your business survive and thrive in challenging market conditions!

1.       Get Organised - Keep summaries of all purchase and sales invoices and petty cash dockets. Importantly, keep your bank statements safe as they are a record of your payments and receipts.

2.       Always check the credit status of a new customer - Risks must not be underestimated in the eagerness of taking on new business. Credit checks can be done quickly and are relatively inexpensive.

3.       Chase overdue accounts regularly - take prompt action to follow up overdue accounts by telephone and check customers whether they have received invoices.

4.       Look for more flexible funding options – why not look into Debtor Finance or a line of credit.

5.       Review your suppliers - review the prices of all your suppliers are charging you. Are you too loyal to your suppliers for the wrong reasons? Think of the effect of 10% reduction in cost on your profits!

6.       Dusts off your business plan- try to reconstruct a winning business plan in 2012. Keep an electronic copy to make sure changes are easier to track.

7.       Call in a business consultant – A dedicated financial consultant can help you plan effectively and take advantage of opportunities on the horizon. If you would like more information on Business Consulting contact James Solomons on (02) 98683900 or james@elitefinance.com.au.