ATO Sounds the Alarm on Off-Limit SMSF Loans

ATO Sounds the Alarm on Off-Limit SMSF Loans

The Australian Taxation Office (ATO) is sounding a clear warning about a persistent issue: prohibited loans within Self-Managed Superannuation Funds (SMSFs). According to recent auditor contravention reports, loans to members stand out as the most frequently reported violation of superannuation laws.

SMSF trustees should take note that lending money or offering financial assistance to a member or relative is strictly off-limits. Violating this rule can lead to penalties reaching up to $18,780 and trustees may find themselves disqualified from their trustee role.

Moreover, extending loans to related parties, such as a business, within an SMSF is subject to restrictions. If the loan’s value exceeds 5% of the fund’s total assets, it qualifies as a prohibited ‘in-house asset’ investment. This prohibition aims to maintain the integrity of SMSF investments and safeguard members’ interests.

In the event that the in-house assets of an SMSF surpass 5% of the total asset value at the end of a financial year, trustees are required to develop a strategy for reducing these assets to less than 5%. The implementation of this plan must be completed by the end of the subsequent financial year.

Importantly, if a trustee finds themselves having made a prohibited loan from their SMSF, swift action is imperative. The loan should be repaid at the earliest opportunity to rectify the contravention and mitigate potential consequences.

Navigating the complexities of SMSF regulations demands diligence and a thorough understanding of the rules in place. Trustees are advised to stay informed and seek professional guidance to ensure compliance with ATO regulations, thereby safeguarding the financial health of their SMSFs and the interests of their members.

For more information, speak with your Simmons Livingstone advisor on 1800 618 800 or via email at This personalised assistance can provide valuable insights and tailored advice, to address specific concerns related to SMSF compliance and ensure a smoother financial journey for trustees.

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