Hi
Can a SMSF loan money to a non-member (that is not an associate of a member) at arms-length, and that non-member loan that money at a higher interest rate to a member?
I don't see a problem with loaning money to a non-member that is not a trustee of the SMSF and is not an associate, where the loan is at arms length on commercial terms. (i.e. its akin to a SMSF investing in a government bond that pays a quarterly coupon).
Im concerned whether the subsequent loan from the non-member to the member could be considered to breach the sole purpose test under the SIS Act? The loan would be at a higher interest rate so that should be sufficient to show commercial feasibility.
Any thoughts?
Thanks
AndyHi there
you will need to get proper advice from a superannuation specialist but this smells like a scheme to circumvent the rules for SMSF funds not lending to a related party
you will probably have problems with the sole purpose test – where the scheme is considered in totality
thanksDoes PartIVA of the Income Tax Assessment Act apply to the SIS Act? Or is there an equivalent provision for 'scheme'?
Thanks
http://law.ato.gov.au/atolaw/view.htm?DocID=DSF%2FSMSFR2007D2%2FNAT%2FATO%2F00003
please review the above link in answer to your queries
thanksthanks for the ATO ruling raddles
i take alot of comfort from the following paragraph…
Circumstances that do not result in a contravention of paragraph 65(1)(b)
17. Arrangements where an SMSF invests on commercial terms in an unassociated entity do not result in a contravention of paragraph 65(1)(b) if that unassociated entity, independently of the SMSF and in its own right and from its own resources, gives financial assistance to a member or member's relative.16
would appear to me that based on para 17, a loan to an unassociated entity (eg a third party) at a commercial interest rate, wherein the funds were subsequently on-lent to a member at a higher interest would not contravene 65(1)(b)?
do you agree?HI there
I think you really need to speak to whoever audits your fund – to see how they interpret this.thanks
I will not comment whether such an arrangement would be considered a 'scheme' – but a SMSF cannot give financial assistance to a member or a relative of a member – either directly or indirectly.
The ATO has released a Tax Payer Alert on this subject (in regards to financial assistance via an 'unrelated' trust):
http://www.ato.gov.au/superfunds/content.asp?doc=/content/00259571.htmAlso, from experience, when a SMSF lodges an annual return with 'Loans' listed (Return question 14b, Label H) – they are significantly more likely to have an ATO audit / review – which means that the ATO considers these types of 'investments' a high compliance risk.
Evolve
Grow SMSF | Grow SMSF
https://growsmsf.com.au
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