Hello Liam, In our latest national debt and savings barometer, we found the main driver of installation and SMSF was the desire for more control (54%). It is therefore interesting to hear that, for some, increased control could be cancelled. The loan contract and the search for a second opinion are major proposals to reduce the risk. But how do you tell the difference between credit and investment? And how do you know what your fund is actually used for? The Australian Tax Office (ATO) limits SMSFs to lending money to a “related part” of your fund. These include all Members of the Fund, parents and spouses of members, as well as business partners and member employers. Due to the freedom to determine when repayments are made, it is also possible that this loan contract will be used as an “on-demand” loan if payable on request, if the lender chooses. In addition, the loan must be the golden rule of superannuation, the only utility test. Like any superfund, SMSFs must be used to provide benefits to members after retirement or to their dependants in the event of the member`s death before retirement. If the granting of credits does not meet this requirement, the result will be non-compliance with the fund. Here is a flow diagram on the money loan of a SMSF (provided the SMSF is available in cash): however, it would be a mutual agreement, as you suggest.
What law says it`s against super-rules? To do this, the ATO advises you to write a loan contract. It is a legal document that defines all the rights and obligations of the parties involved, the lender and the borrower, as well as the terms of the loan. Important: You can only claim the interest the bank charges you if you earn a “profit” by borrowing the money. Even a small “gain” of 0.1% is enough. For example, you borrow money from the bank at 10%. You have to make a profit. So lend the money to your business with a small fee. So you can calculate 10.1%. But you never know what the bank`s going to ask for. It`s changing. Therefore, leave in the standard formulation “as requested from time to time by the lender.” A WSIS can lend to third parties if the loan agreement and loan terms are in the interest of the SMSF. However, reciprocal agreements are generally a violation of super-rules.
Have you borrowed money from a self-administered super-fund (SMSF) or your clients? Or are you thinking about it? The Australian Tax Office (ATO) recently warned SMSF administrators against the loan agreements they enter into on behalf of SMSF.