The ATO has reminded SMSF trustees to ensure existing loan arrangements have not breached the in-house asset rules after identifying ongoing compliance issues related to the provision of such loans.
The regulator noted SMSF loans to members remained a significant compliance risk despite warnings in previous years and reiterated substantial penalties will be applied to those who fail to uphold their obligations under the Superannuation Industry (Supervision) Act.
“Loans to members continues to be the highest reported contravention of the superannuation laws that we see in auditor contravention reports lodged by SMSF auditors. These loans comprised 16 per cent of all reported breaches for the 2019-2022 audit years,” it stated.
“It’s important to remember SMSF trustees cannot loan money or provide other forms of financial assistance to a member or relative. If they do, they can incur a penalty of up to $18,780. They may also be disqualified as a trustee, which means their name is published online and they can no longer operate their fund or another self-managed super fund in the future.”
If fund members surpass the in-house asset limits when accessing a loan, the ATO stated the fund must divest its interests by the upcoming financial year to maintain compliance.
“An SMSF trustee also cannot loan money to a related party such as a business where the value of the loan exceeds 5 per cent of the value of the fund’s total assets. This is a prohibited in-house asset investment, which is a contravention,” it said.
“If the SMSF’s in-house assets exceed 5 per cent 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 per cent. The plan must be prepared and implemented by the end of the following financial year and failure to do so will result in a contravention.”
It advised trustees who may hold a prohibited loan to rectify the breach immediately by accessing the list of appointed SMSF professionals through the ATO online portal.
If fund members are unable to rectify the breach, they will need to access the SMSF early engagement and voluntary disclosure service available on the ATO webpage.
The warning comes after the regulator recently indicated it will undertake increased compliance activity in relation to SMSF property development projects and related-party transactions.