Loans issued by an SMSF

An SMSF can make loans to external parties (i.e. not borrow money), provided the loan agreement is in the best interest of the SMSF. Make sure the loan terms comply with the law and you are not lending money to Members or relatives of the Fund.

Here is a checklist for an SMSF to lend money:

  • The SMSF Investment Strategy and Trust Deed must allow for lending.
  • Can not make a loan to a related party. Section 65 of the SIS Act prohibits lending to them.
  • When lending to a related party, the in-house asset rules under the SIS Act apply. Only 5% of an SMSF’s assets may be represented by in-house assets.
  • Ensure the terms of the loan is reasonable:
    • The loan terms need to be standard terms for the sort of loan that it is; and
    • The trustees of the SMSF must invest with other parties on arm’s length terms (see Section 109 of the SIS Act)
  • Have a loan agreement is place setting out the terms of the loan:
    • What the security for the loan is;
    • The repayment period;
    • When repayments will be paid and the amount of those repayments; and
    • The interest rate

     

For more info about the arm’s length in an SMSF, please see the ATO video below.

 

Loan Repayment Schedule

Download a template to be used here:

Download a Loan Schedule Template

 

For more rules and guidance on how to run an SMSF, see the ATO guidance booklets page.

 

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Superannuation Warehouse is an accounting firm and do not provide financial advice. All information provided has been prepared without taking into account any of the Trustees’ objectives, financial situation or needs. Because of that, Trustees are advised to consider their own circumstances before engaging our services.