Put your SMSF’s loan terms in writing before the money leaves its bank account.
Includes:
Your super is for your retirement. Lending money earns a return when the borrower pays the interest and repays the loan. But what happens when payments stop? Or the borrower disputes what you agreed?
Legal Consolidated’s Loan Agreement records who owes the money, the interest, when repayment falls due and the consequences of default. Put these protections in place before you transfer a single cent.
More than 4,600 accountants, financial planners and lawyers build legal documents on Legal Consolidated’s website. You draw on our national law firm’s drafting and the guidance built into the questions.
We prepare your finished Loan Agreement from your answers and provide it with our law firm’s cover letter. You receive the document and instructions explaining its use. Read the hints as you build. Contact us for help answering the building questions.
Legal Consolidated’s Loan Agreement records:
A loan to a company acting as trustee of a family trust needs the company and its trustee capacity properly identified. Your SMSF’s own trustee must also be correctly named. Our questions guide you through those details.
Bruce Rowntree received substantial payments from companies he controlled. He said they were loans. The dispute exposed a serious problem: the absence of records showing an obligation to repay when the money changed hands.
In Rowntree v Commissioner of Taxation [2018] FCA 182, the Federal Court examined the evidence of the alleged loans. Believing that a payment was a loan did not establish the necessary agreement.
The lesson for your SMSF is practical. Record the repayment obligation when you make the loan. Keep the signed agreement and evidence of the money advanced. Do not leave your accountant to reconstruct the arrangement years later.
Legal Consolidated’s Loan Agreement gives you the document to settle and sign before advancing the money.
![Your SMSF lent the money. Can you prove it was a loan? Rowntree v Commissioner of Taxation [2018] FCA 182](/_next/image?url=%2Fmedia%2F27afff88-12cd-420d-b23f-f62c04883ba6%2Fexec-f7902b43-ae73-45d7-879c-37546a6a98eb.jpg&w=1920&q=75)
Yes. Lending is an investment your SMSF may undertake. The proposed loan must fit the fund’s investment strategy and comply with superannuation law. The ATO expects commercial, arm’s-length lending.
Consider the borrower’s ability to repay. What return does your SMSF receive for the risk? When does your fund need the money for pensions and expenses? Would an independent lender accept the proposed terms?
The sole purpose test in s 62 and the investment requirements in s 109 of the Superannuation Industry (Supervision) Act 1993 (Cth) underpin these decisions. Your Loan Agreement records the terms. Your accountant and financial adviser help you assess the proposed investment.
A related company or trust is different from a member personally borrowing the money. Some related-party loans are permitted, subject to the in-house asset rules and the other superannuation restrictions.
A loan to a related company or trust ordinarily counts towards the fund’s in-house assets. The 5% limit applies to the fund’s total in-house assets, not a separate allowance for each loan.
For example, a fund with assets worth $2 million has a $100,000 in-house asset limit. Existing in-house assets use part of that allowance. Staying below the limit does not, by itself, make a proposed loan lawful. Have your accountant check the arrangement before the money moves. Then record the agreed terms in your Legal Consolidated Loan Agreement.
No. Section 65 of the Superannuation Industry (Supervision) Act 1993 (Cth) prohibits lending fund money to members or their relatives. It also prohibits other financial assistance to them using fund resources.
The 5% in-house asset limit does not override that prohibition. Routing money through a company does not cure an arrangement that provides prohibited financial assistance.
Your auditor asks about money that has left the fund. You produce the signed Loan Agreement, bank records and repayment history. The interest calculation matches the agreement. The outstanding balance matches the accounts.
That is a clearer story than “we agreed to sort it out later”.
Legal Consolidated’s Loan Agreement puts the contractual terms in one place. Keep it with the records showing how you assessed the loan and how the borrower performs. The document and the conduct should tell the same story.
The borrower misses a payment. You need to know what is due, what amounts to default and what your agreement permits you to do next.
Your Legal Consolidated Loan Agreement sets out the borrower’s obligations and your contractual rights when the borrower defaults. A guarantee adds another person’s promise to meet the obligations covered by that guarantee. Each guarantor should obtain independent legal advice before signing.
Security is a separate consideration. If you want additional protection over assets, arrange the appropriate security documents and any registration needed to make that protection effective. Signing a Loan Agreement does not itself register a mortgage or a security interest.
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