In brief - You can make extra contributions to your
super fund by borrowing from the bank or yourself
Self managed superannuation funds have been able to borrow for
investment purposes for a number of years. Increasing numbers of
SMSFs are taking the opportunity to borrow to buy real property,
although the ability to borrow applies equally to the purchase of
other assets such as shares.
With lower contribution limits you can still in effect make
additional contributions to your super fund by borrowing from the
bank or from yourself.
Asset needs to be held in a separate trust for super
fund if money borrowed
With legislation confirming a clear ability to borrow, the banks
have offered a range of products for SMSFs that comply with the
This legislation principally requires that any loans are non
recourse to the general assets of the SMSF and are strictly limited
to recourse against the actual asset purchased.
There are clearly some additional structuring costs, as the
asset needs to be purchased in the name of a bare trustee who holds
the asset on trust for the superannuation fund and agrees to
transfer the legal ownership of the asset to the superannuation
fund when the borrowed monies have been repaid in full.
Obviously loans from banks and other financial institutions will
be at commercial rates and with these borrowers the rate will
clearly not be above or below a commercial arm's length
Loans from an associated entity of members of the
If a loan is made by an associated entity of the members of the
SMSF instead of a third party financial institution, more care
needs to be taken.
The Australian Taxation Office (ATO) takes the view that paying
interest in excess of a normal commercial rate is equivalent to
withdrawing money from the fund. This is not allowed and therefore
care should be taken not to pay a rate that exceeds a normal
Somewhat surprisingly, the ATO's current view is that it has
no concerns with loans that are at a lower than commercial
You can legally make an interest free loan to your
Accordingly, where a member of a SMSF wishes to increase the
level of assets held in the fund but has reached the threshold of
their ability to contribute to the fund, they can achieve a similar
result by making interest free loans to the fund.
By way of example, a member of a fund will currently be limited
to a contribution of $25,000 a year (deductible) and $150,000 a
year undeducted, with a capacity to bring forward three years at a
time. This gives a member the ability to make a total contribution
of $475,000 in any one year.
If a member wishes to purchase, say, a $5 million commercial
property for the SMSF, the member could in fact choose to borrow
100% of the acquisition cost with an interest free or minimal
interest loan from a related entity of the member.
The net result will be that rather than the member paying tax at
the member's marginal tax rate, the tax will be 15% on income
and 10% on capital gains whilst the fund is in accumulation phase
and no tax at all will be payable in the pension phase.
This part will cover the legal position in relation to promotional materials and misleading and deceptive conduct.
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