Loans to members still plaguing SMSFs

Financial assistance a problem

By Darin Tyson-Chan
Wed 24 Mar 2010

SMSFs continue to struggle with loans to members as a compliance issue.

Loans and financial assistance to members, relatives and related parties are issues that are continuing to cause regulatory concern over the compliance of self-managed superannuation funds (SMSFs).

"Year after year these contraventions are at or near the top of all contraventions reported in an auditor contravention report," Australian Taxation Office (ATO) assistant commissioner funds segment superannuation, Stuart Forsyth, told delegates at the Institute of Chartered Accountants Australia 2010 SMSF conference.

"They account for about 22 per cent of the contraventions reported, which means roughly 2000 contraventions," he said.

According to Forsyth, the problem does not end with the loans or financial assistance provided. SMSFs entertaining such practices will usually also have breached the in-house assets rule as well.

"You can have three or four contraventions arising from the one transaction," he said.

Forsyth warned that while the act of providing these loans may seem to SMSF trustees as a harmless or a "quick fix" solution to a person's cash flow problems, it is a serious contravention in the regulator's eyes and one the ATO will take action against.

"It's not as if this is a grey area of the law. The rules are quite specific and clear," he said.

Forsyth cited instances where individuals had paid back the loan due to a contravention report only to re-borrow the money immediately afterwards. In those situations, the SMSF is likely to be declared non-complying by the ATO, he said.

"It makes it very difficult for us. We actually don't have a target of making funds non-complying. It's something my people really don't like doing because they see it as a really drastic thing to do," Forsyth said.

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