ATO warns on SMSF loan-back schemes

The Australian Taxation office has cautioned self-managed superannuation fund trustees to avoid loan arrangements currently being marketed that involve money flowing back to fund members.

The ATO issued a statement last week, advising that arrangements were likely to contravene superannuation law if they involved an investment of SMSF funds into a trust or investment product, which then offered to lend some or all of the money back to the member.

The ATO said that if such an arrangement resulted in fund members obtaining a personal or business related mortgage, the SMSF assets would be providing members with "current-day benefits" and would be in breach of the superannuation sole purpose test.

Under superannuation law a fund needs to be maintained for the sole purpose of providing retirement benefits to its members or their dependants. Investments should not offer pre-retirement benefits.

If a trustee or member obtains a financial benefit when making investment decisions, it is likely that the fund will not meet the sole purpose test.

The ATO said it was investigating some lending arrangements.

It said: "Our view is that the primary purpose of such arrangements is to enable individuals and associates to use their super savings rather than assets held outside the fund to provide assistance to members or relatives."