Lending from a SMSF

Hi everyone,

I am new to this, so please bare with me.

I am looking at lending some funds from my SMSF (90% of the fund) to an unrelated party (company A).

In return for doing this, i am able to obtain a loan from another company (company B) controlled by the director of the unrelated party (company A).

I will actually receive the loan from Company B before i lend the funds to Company A.

The loan to Company A is on commercial terms and not connected to the loan from Company B, and my super is not used as security.

Can anyone tell me whether this is regarded as an inhouse asset, or whether i am deemed to be getting a personal benefit from the investment and whether it would make my SMSF non compliant?

PLEASE HELP...SO CONFUSED!

Steve

 

Before even answering your questions I believe it may be prudent for YOU to ask yourself some questions first:

1. Do you think investing 90% of your SMSFs assets in one 'investment' is a good idea?
2. Does it seem dodgey to you?
3. Does your investment strategy cover it?
4. If you have an SMSF you must have at least an auditor / accountant / adviser - why aren't you asking them?

You state that the loans between the two companies are not connected - but how do you know? If it truly is an unrelated party chances are Company A will simply loan the amount to Company B and probably take a big chunk of commission on the way through.

Welcome to the world of illegal early access schemes!

Without being too technical, the arrangement you have described is a breach of the sole purpose test as you are making an investment that gives you a benefit before you retire (even though it is apparently not connected).

If you entered into this scheme knowningly, your SMSF would become non-compliant and you could face fines of up to $220,000 or 5 years in jail.

I understand that in reality, if you did lend the money and you provided your auditor and accounant with a properly drafted loan agreement on commercial terms to a company that was truly unrelated as part of your investment strategy, you may still get the auditor to sign off that your fund is still compliant. But what happens if they - or worse yet - the ATO goes a little deaper? How do you know that these companies are not offering these schemes to other SMSFs? The ATO only need to uncover one and then...


Another thing I am wondering is WHY you want to enter into this contrived arrangement? What are you trying to achieve? Maybe if you discussed your underlying reasons for wanting to enter this scheme, either your accountant / auditor / adviser or other people here on Invested may be able to help or point you in the right direction.

I hope this helps your confusion!
SM

 

Lendin from SMSF

Hi Steve, I agree with everything Superman has to say. In simple terms don't do it. Also be aware of the terminology for Related Party.
Part 8 Associates of a member -
" business partners (as well as any spouse or child of that business partner if it is an individual"
" any company that is sufficiently influencesd by, or in which a majority voting interest is held by the individual or any other Part 8 Associates of the individual."

 

The answer is simple - section 65 of the SIS Act 1993 provides that the trustee of a fund cannot provide any financial accommodation to a member. The Commissioner has issued guidelines last year on lending to members. The arrangement sought would contravene section 65. As an aside it does not make sense to take money out of the super system given its taxation advantages - the majority of smart investors are putting as much in as possible. To really get things moving try turning your fund into a family super fund - get your parents in and then maximise your strategic opportunities.

 

Giving financial assistance to members
Sole purpose test

Are these the guidelines you mean GA/AA?

I hope Steve replies with some more info.

SM