Self-managed super funds (SMSFs) have a number of investment restrictions which apply to transactions conducted within the fund.
One such restriction applies to transactions involving ‘related parties’ of the fund and ‘relatives of members.’
No one associated with the SMSF should obtain a present-day benefit from the fund’s investments. The fund needs to meet the ‘sole purpose test’ of providing death or retirement benefits to the SMSF members or their dependents.
A breach to the investment restrictions may result in significant penalties, such as the disqualification of a trustee and even prosecution.
The Tax Office considers a ‘related party’ as:
all members of the fund
associates of fund members, including:
– relatives of each member
– the business partners of each member
– any spouse or child of those business partners
– any company the member or their associates control or influence
– any trust the member or their associates control
standard employer-sponsors, which are employers who contribute to your super fund for the benefit of a member, under an arrangement between the employer and a trustee of the fund
associates of standard employer-sponsors, which include business partners and companies or trusts the employer controls (either alone or with their other associates) and companies and trusts that control the employer.
The ATO considers a ‘relative of a member’ as a parent, grandparent, brother, sister, uncle, aunt, nephew, niece, lineal descendant or adopted child of the member or their spouse; or a spouse of any individual specified previously.
Generally, SMSFs cannot borrow money and cannot buy assets from, or lend money to, fund members or other related parties (although there are exceptions to this rule).