Self-Managed Super Funds Lending Money to Related Entities

The Administrative Appeals Tribunal has ruled agaiinst the trustees of a self-managed superannuation fund for lending the fund's cash to a company controlled by the trustees. The cost of the breach was a staggering 45% tax on the value of the superannuation fund's assets and income.

Under the superannuation law, a fund may only lend 5% of the market value of its total assets to a related party. In the case before the AAT, almost 100% of the fund's assets had been lent to the related company. Further, the company was slow to repay the amount, even though the market interest was paid by the company to the superannuation fund.

The AAT dismissed arguments by the trustees that the company was in desperate need of the cash to maintain solvency caused by adverse trading conditions and that the health of the trustees was not good during the relevant period.

The payment of the amounts from superannuation funds is strictly regulated and in certain circumstances, inappropriate payments can lead to jail terms. We recommend that superannuation fund trustees check with us before making payments to members or related parties to ensure compliance with the law.