Loading
This thread is archived and the information may not be up-to-date. You can't reply to this thread.
GAFAUS(Initiate)Initiate
2 Aug 2022

Dear case officer,

My client recently established his SMSF in July 2022 (current financial year) with a balance of approx.$500k ( invested in managed fund portfolios), his financial adviser is assisting SMSF to lend $20k to my client (Member of SMSF - A related party) under 5% in-house asset rule pursuant to S71 SIS Act, I have also cross checked SMSFR 2009/4 regarding the definition of loan. The financial adviser intends to prepare the legal commercial loan agreement ( from Cleardoc) for this $20k loan between member(my client) and SMSF.


However, another tax partner in our firm mentioned that ATO might deem this $20k as early access on Super because this in-house loan should not be established in the year when SMSF is established, hence a potential breach of SIS Act.


Does ATO has PR or TR or any guidance on this specific in house loan arrangement in the first financial year of SMSF being established?

Kind regards

1,304 views
2 replies
1,304 views
2 replies

Most helpful response

Most helpful reply

Bruce4Tax(Taxicorn)Taxicorn
2 Aug 2022

Don't do it!


This is a misunderstanding of when a loan can be permitted as an IHA.

Loans to members are strictly prohibited - loans to related entities must be under 5%


https://www.cleardocs.com/clearlaw/superannuation/rules-for-smsf-which-land-money.html


Ask the SMSF auditor - this is a reportable contravention.


I have had trustees disqualified for doing this - after they had already done it once and made an enforcable undertaking never to do it again.


The financial planner would be having difficult conversations with ASIC about their license.


All replies

Most helpful reply

Bruce4Tax(Taxicorn)Taxicorn
2 Aug 2022

Don't do it!


This is a misunderstanding of when a loan can be permitted as an IHA.

Loans to members are strictly prohibited - loans to related entities must be under 5%


https://www.cleardocs.com/clearlaw/superannuation/rules-for-smsf-which-land-money.html


Ask the SMSF auditor - this is a reportable contravention.


I have had trustees disqualified for doing this - after they had already done it once and made an enforcable undertaking never to do it again.


The financial planner would be having difficult conversations with ASIC about their license.


Liked by GAFAUS
GAFAUS(Initiate)Initiate
7 Aug 2022

G'day Bruce,

Thank you so much for your input and early warning, as I dug into the legislations and soon discovered there is a clash between the lending rules and the in‑house asset rules as a trustee is prohibited from lending any amount to a member or a relative under section 65 of the SIS Act, but is permitted to lend up to 5% of the fund’s value to a related party under s 71 the in‑house asset rules (a related party of an SMSF includes a member of the fund and their relatives). To resolve this apparent contradiction, section 65-7 specifies that nothing in the in‑house asset rules limits the operation of the ban on lending or providing financial assistance to members or relatives. Therefore, despite the in‑house asset rules, trustees must not lend any amount or provide any form of financial assistance to a member or a relative of a member of a fund.

Once again, much appreciate for your great input on this particular question. I think this financial adviser will be astonished to discover the imminent disaster due to his financial advice.

Kind regards

Featured articles

What you need to know about early release of super

10 Apr 2025 · 4 min read time

How do I transfer super into my spouse's super fund?

8 June 2023 · 2 min read time

Claiming your departing Australia superannuation payment (DASP) online

28 Aug 2025 · 5 min read time

Top liked users

  1. Bruce4Tax

    (Taxicorn)

    3260 likes

  2. Taxduck

    (Taxicorn)

    2069 likes

  3. PayrollDeanne

    (Taxicorn)

    816 likes

  4. YellowPotato

    (Taxicorn)

    529 likes

  5. knaresbro

    (Devotee)

    364 likes

Top contributors

  1. Bruce4Tax

    (Taxicorn)

    10399contributions

  2. Taxduck

    (Taxicorn)

    4760contributions

  3. PayrollDeanne

    (Taxicorn)

    2061contributions

  4. YellowPotato

    (Taxicorn)

    1352contributions

  5. YEP

    (Devotee)

    837contributions

Loading
Is in-house loan from SMSF to member permitted under 5% rule in 1st FY? | ATO Community