Prohibited SMSF Loans

Loans to members continues to be the highest reported contravention of the superannuation laws that we see in auditor contravention reports (ACR) lodged by self-managed super fund (SMSF) auditors. These loans comprised 16% of all reported breaches for the 2019 to 2022 audit years.

It’s important to remember SMSF trustees cannot loan money or provide other forms of financial assistance to a member or relative. If they do, they can incur a penalty of up to $18,780. They may also be disqualified as a trustee which means their name is published online and they can no longer operate their fund or another self-managed super fund in the future.

An SMSF trustee also cannot loan money to a related party such as a business where the value of the loan exceeds 5% of the value of the fund’s total assets. This is a prohibited in-house asset investment which is a contravention.

If the SMSF’s in-house assets exceed 5% of the total value of its assets at the end of the financial year, the trustee must prepare a plan to reduce their in-house assets to less than 5%. The plan must be prepared and implemented by the end of the following financial year and failure to do so will result in a contravention.

It is important you understand the rules to avoid making prohibited loans from your SMSF.

If you have made a prohibited loan from your SMSF it must be rectified as soon as possible by ensuring the loan is repaid. You should contact your appointed SMSF professionals to help.

If you can’t rectify the breach, you should use our SMSF early engagement and voluntary disclosure service to engage with us early. If you do this before we start an audit and take compliance action, we take your disclosure into account in determining what other actions we need to take.

How we deal with non-compliance has information on the types of compliance action we might take where we see breaches of the super laws.

You can also visit restrictions on investments to see the different types of contraventions.

Source: ATO