If your family business needs cash flow in addition to the withdrawal of the $10,000 per member in the 2020 and 2021 financial years, a Self-Managed Superannuation Fund (SMSF) can explore a related party transaction where the SMSF lends to the business an amount not exceeding 5% of the assets of the SMSF.
The Superannuation Industry (Supervision) Act (SIS Act) defines an in-house asset as any of the following:
- a loan to, or investment in, a related party of your fund
- an investment in a related trust of your fund
- an asset of your fund that is leased to a related party
This strategy may be considered where:
- Members of the SMSF also operate a successful small business but as a result of COVID-19, the business needs a cash injection to finance stock, operating expenses or slow-paying debtors.
- Another example may be where the parents have a healthy SMSF and their son or daughter operates a successful business that is experiencing cash flow problems. The parents may have cash in their superannuation fund that they may be ineligible to access at present as they are not yet retired. Also the cash in the superannuation fund, in this current market, maybe offering only a very modest return. By investing in the son or daughter’s business they would receive a more substantial return on their investment, whilst at the same time financially assisting their child’s business.
The ATO has advised that if at the end of a financial year, the level of in-house assets of an SMSF exceeds 5% of a fund’s total assets, the trustee must prepare a written plan to reduce the market ratio of in-house assets to 5% or below. If an SMSF exceeds the 5% in-house asset threshold as at 30 June 2020, a plan must be prepared and implemented on or before 30 June 2021.
Should you require more information regarding Self-Managed Super Funds and In-house assets please feel free to contact Peter Quinn by submitting an enquiry or calling us on +61 2 9580 9166.