David Busoli, principal of SMSF Alliance, said a member’s pro-rata shares of an outstanding loan is counted as an asset for total super balance purposes and can catch many SMSF members unaware.
“The safe harbour provision interest rate to be charged to SMSFs with related party loans has increased by a whopping 3.5 per cent for the 2023–2024 financial year,” he said.
“It’s now 8.85 per cent for real estate and 10.85 per cent for listed securities. This may encourage trustees to sell the investment or seek refinancing from an arm’s lender at a lower rate – but check the loan documentation first.
“Under the safe harbour provisions, the interest rate may have been fixed for five years so it’s possible that the rate will not need adjusting for the moment.
“Needless to say, this may have the effect of preventing a member from making a non-concessional contribution to pay out the loan – a classic circular argument – unless it’s refinanced through an arm’s length lender first.
“It should also be noted that this may not be a solution as even non-related loans are counted once the member’s benefit becomes unrestricted non-preserved.”
Mr Busoli said some SMSF members may have entered into related-party loans with the expectation that at some stage they will make large non-concessional contributions to the fund to pay out the loan, but he clarified this is only possible if the member’s TSB is low enough.
“If the TSB is at $1.9 million, you can’t make any non-concessional contributions.
“Some people think it is for non-related loans but it also for bank loans where a member may have triggered the benefits,” he said.
“A number of funds would have geared properties in them where a member will have unrestricted non-preserved funds and there is a if related party loan, it is counted for everyone.”
He said for example, if there is a single-member fund, and it has a $500,000 member account but that account is made up of million-dollar property with a $500,000 loan against it, the TSB should only be $500,000.
However, if the loan is a related-party loan or from a bank and the member has triggered unrestricted non-preserved that $500,000 loan is counted as part of their super balance.
“There is not a huge number of people who do related-party loans but they are in funds and when a member turns 60 or retires and triggers a release [of funds] suddenly they become affected,” he said.
