ATO warning regarding prohibited SMSF loans

December 4, 2023 | Robyn Bull

Loans to members continue to be the highest reported contravention of the superannuation laws that the ATO sees in auditor contravention reports.

SMSF trustees should remember that they cannot loan money or provide other forms of financial assistance to a member or relative, and if they do, they can incur a penalty of up to $18,780.  They may also be disqualified as a trustee.

SMSF trustees also cannot loan money to a related party, such as a business, where the value of the loan exceeds 5% of the value of the fund’s total assets, as this is a prohibited ‘in-house asset’ investment.

If the SMSF’s in-house assets exceed 5% 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 5%, which must be implemented by the end of the following financial year.

If a trustee has made a prohibited loan from their SMSF, the loan must be repaid as soon as possible.