Superannuation - Bare Trust Related Party Mortgage old
Assuming your super fund is borrowing from a member, the loan must be on commercial terms....
Sections 67A and 67B of SIS allows your superannuation fund to borrow providing that it follows a certain procedure (including the loan being limited recourse, to the asset being acquired) and it adheres to the corner stone principles of super law (sole purpose, in house assets, related parties, financial benefits). The ATO have reminded us of these principles in Taxpayer Alert 2008/5:
- monies advanced by a member or related party at zero or less than a commercial rate of interest could be characterised as a contribution to the SMSF. This may result in the trustee/member having to pay excess non-concessional contributions tax under Division 292 of the Income Tax Assessment Act 1997;
- monies advanced by a member or related party at greater than a commercial interest rate of interest may result in (A) a breach of the sole purpose test outlined in section 62 SISA, on the basis that the excessive interest rate may mean that the SMSF is not being maintained solely for the purpose of providing superannuation benefits, and/or (B) the trustee breaching section 65(1)(b) SISA, which prohibits the trustee from giving financial assistance to a member of the SMSF or to a relative of such a member using the resources of the SMSF;
- interest capitalised may result in the arrangement failing to meet the requirement that the money borrowed is or has been applied for the acquisition of an asset under sections 67A and 67B SISA.
This agreement provides the parties with the required commercial terms.