We often get questions from clients about what they can and cannot do in their SMSF, often to do with related party transactions – that is, interactions between the SMSF, its assets, and its members (or relatives of members). Here are some of the common questions and answers.
We often get questions from clients about what they can and cannot do in their SMSF, often to do with related party transactions – that is, interactions between the SMSF, its assets, and its members (or relatives of members). Here are some of the common questions and answers.
In general, all interactions between your SMSF and its members should be at arm’s length – that is, the terms of the transactions are the same as what would be entered into between independent parties, but there are circumstances where the interests of the fund and its members intersect.
A transaction which is favourable to either party is deemed to be at non-arm’s length terms, which could create some taxation issues. Here’s some examples:
Can I charge for the work I do to administer my fund?
Trustees of an SMSF cannot be remunerated for the work that they do for the fund. The exception is where you are qualified to provide certain services to your fund and act in that professional capacity. For example, you are a real estate agent and are buying and selling property assets for the fund. In this case, you are not being paid for work you do in your capacity as trustee but as a professional providing a service at market value (see Can I charge my SMSF for work that I do?).
Can my SMSF purchase a rental property that I own?
Your SMSF cannot acquire property from a related party of the fund unless the property (land and buildings) is used wholly and exclusively in a business (business real property).
Under these circumstances your SMSF could purchase the commercial premises used by a business you own and lease the property back on commercial terms.
If business real property is used in a primary production business such as a farm, it can still meet the test of being used wholly and exclusively in a business even if it contains a dwelling that is used for private or domestic purposes. But, the dwelling must be in an area of land no more than two hectares and the main use of the whole property can\’t be for domestic or private purposes.
Can I lend money to my SMSF?
Members of a fund can lend money to their SMSF in very limited circumstances, and usually to buy property, if the following conditions must be met:
- It is a limited recourse loan to the SMSF and is appropriately documented, and
- The SMSF is not charged higher than an arm\’s-length rate of interest for borrowing, i.e., the loan is on commercial terms, there are ‘safe harbour’ guidelines provided around loan to value ratios, and repayment terms to ensure the loan is at arm’s-length.
Can my SMSF lend me money?
No. Your SMSF cannot lend you or any of your related parties money. The superannuation rules specifically prohibit the fund providing financial assistance to members. This includes where a member takes money out of the SMSFs account for a short amount of time and replaces it in full. Just don’t do it.
If you are looking for advice on your self-managed super fund call the Acumon office on 4931 1100 and one of our team can help.