Loaning from SMSF

Discussion in 'Superannuation' started by BuggedOut, Aug 30, 2016.

  1. BuggedOut

    BuggedOut Well-Known Member Silver Stacker

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    Was just wondering if it is possible to set up a SMSF and then arrange a loan (eg, mortgage, margin loan, personal loan) from the SMSF to a family member, or even to yourself?

    Seems to me that SMSF gives flexibility to invest in different investments, so is there any real difference in using super to buy junk bonds....or granting a personal loan to an individual at a fixed rate of interest?

    Obviously the loan would need to be documented and perhaps there would need to be a "fair market rate" for interest charged, but perhaps this is another way that super equity can be accessed without necessarily needing to use a bank (in other words - keep it out of the financial system). Interest paid on the loan would effectively be a tax free way of making further contributions to your super??

    Can anyone help out with advice on this? Has anyone tried it?
     
  2. Ipv6Ready

    Ipv6Ready Well-Known Member Silver Stacker

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    I have heard there is a loop hole in loaning out to family members etc I think it was called Related Parties.
    But if is restricted to 5% of the fund and it has to be an entity etc.

    It is one of the most audited part of the ATO and the crunch was if you lend to a relative and they default, unlike if it is your money, where you can decide to kiss it goodbye because you understand the situation, they tried hard etc and you dont want to make it worse, IN SMSF that is not possible. You need to sue for the money officially and potentially bankrupt your relative. Not an easy situation to be in remember it is your money but not yet.
     
  3. BuggedOut

    BuggedOut Well-Known Member Silver Stacker

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    I really want to loan it to myself. So I would be required to sue myself for the funds if I defaulted?

    Seems there is a bit of hypocrisy here somewhere. Sounds like I can use a SMSF to invest in whatever I like....except myself?
     
  4. Ipv6Ready

    Ipv6Ready Well-Known Member Silver Stacker

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    You have to treat SMSF like a bank... it has rules.

    Hence technically SMSF cant lend to you MR BugOut or to your related family members direct, it has to be via business entity.

    So if you owned a coffee shop, the SMSF is lending to the coffee shop (not you) - now if the coffee shop default you would chase that money legally if it was a stranger like any business?

    No difference.

    Lets look at a silly scenario... You want to buy a Audi for personal pleasure.

    You make up a fake business plan and call it - Audi A8 Hire LTD, stating you will charge X amount of dollars per ride for joy riders and wedding etc. and that 20 rides per months generating $2000 of income, minus expense and you can comfortably pay back $1000 for principle and interest

    You approve the loan from SMSF to Audi A8 Ltd

    Now you are paying back Interest and principle, no problem.

    You lose your job (fingers crossed you dont)

    You stop paying....

    If this was your personal saving money - no dramas.
    If it was St geroge bank they will chase you for the money - maybe bankrupt you
    If this is SMSF just like ST George it must sue for the money -> maybe even bankrupt you to get the money back in the SMSF.
     
  5. BuggedOut

    BuggedOut Well-Known Member Silver Stacker

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    Good answer, thanks for clarifying. Much appreciated! :D
     
  6. SilverDJ

    SilverDJ Well-Known Member

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    I believe that's how ti works too. It definitely works that way for property you buy in the SMSF, you can only rent it out to Pty Ltd companies. So if you are a sole trader or partnership then you can't do it.
     
  7. MoreSilver

    MoreSilver Member

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    To pop in two cents worth... hopefully you will get a bit of a laugh if you read it from a cynical 'not for it, not against it' point of view :)

    Sometimes it helps to think of a SMSF like a been around the block 20 times horse bookie... or even a character like 'bricktop' out of the movie 'Snatch'

    So in the case of loaning funds to a family member and trying to convince the bookie 'its a good deal, don't worry you'll get your money back (big smile)'
    - there reply could be much like "you want me to loan them... money... and whats to stop them from giving the money to you and then telling me they lost it? what do you take me for eh?"
    - not going to type what I think 'bricktop' would be saying LOL

    I know this is a bit out of left field.. but what it does do is take the side that the rules are on and be a devils advocate.
    The loan in your mind might be as sound as houses. It might actually be as sound as houses. But the 'bookie' and the rules are coming from the perspective of trying to protect you from a scam if a scammer was trying to get at your super and you hadn't discovered it was a scam :) ie doing the due diligence that you may not have done to protect your balance for when you need it in retirement.

    I don't necessarily agree with all the rules. Only its a useful way to see that side of the equation :)

    My cynical side also thinks... as soon as the govt discovers a loop hole thats been taken advantage of they will make a new law to stitch it up :)
     
  8. SilverDJ

    SilverDJ Well-Known Member

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    Unless it's been taken advantage of by them.
     
  9. Elemental

    Elemental Active Member Silver Stacker

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    A loan to a member or a related party (i.e. a company of which you are a director) is considered an in-house asset. These assets cannot make up more than 5% of the total value of assets of the fund.

    If your fund continues to have these loans (auditors must report the SIS breaches) then your fund can be made non complying - which you definitely don't want.
     

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