ATO issues warning over prohibited SMSF loans

Loans to members continue to be the highest reported contravention of the superannuation laws by SMSFs, says the ATO.

The ATO claimed that these loans comprise 16 per cent of all breaches in auditor contravention reports lodged by SMSF auditors between 2019–2022.

It reminded SMSF trustees that they cannot loan money or provide other forms of financial assistance to a member or relative or they can incur a penalty of up to $18,780.

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Trustees may also be disqualified as a trustee which means their name is published online and they can no longer operate their fund or another SMSF in the future.

The regulator continued that an SMSF trustee also cannot loan money to a related party such as a business where the value of the loan exceeds five per cent 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 five per cent 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 per cent.

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.

The ATO added it is important that the trustee understands the rules to avoid making prohibited loans from an SMSF.

If a trustee has made a prohibited loan from their SMSF it must be rectified as soon as possible by ensuring the loan is repaid.

If a breach of this rule has been made, the ATO advises the trustee to contact their appointed SMSF professional for help.

If they can’t rectify the breach, they should use the ATO’s SMSF early engagement and voluntary disclosure service to engage with the department early.

If they do this before the ATO starts an audit and takes compliance action, the ATO will take the disclosure into account in determining what other actions it needs to take.

Information on how the ATO deals with non-compliance can be found on its website.

It also has information on the types of compliance action it might take where it sees breaches of the super laws.

By Keeli Cambourne
30 October 2023

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Sofie Korac is an Authorised Representative (No. 400164) of Prudentia Financial Planning Pty Ltd, AFSL 544118 and a member of the Association of Financial Advisers.

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