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.