Self-managed super funds (SMSF) must pay the full interest amount on related party loans no matter what rate is charged or risk having the expense treated as a contribution, according to a legal specialist servicing the superannuation industry.
“If your documentation states the [related party] loan is at say 6 per cent, and I just use 6 per cent as a figure taken from the air, the trustee must pay 6 per cent interest,” Townsends Business and Corporate Lawyers special counsel Michael Hallinan said.
“If the trustee pays 3 per cent, so that there is an underpayment, then that underpayment will be treated as an expense of the fund that has not been met and so once it’s released it will be treated as a contribution,” he explained.
Hallinan pointed below market rates of interest could be charged on related party loans to SMSFs it’s just that the agreed rate of interest had to be paid.
In other superannuation news the Federal Government has enacted the regulation allowing certain excess contributions to be refunded to fund members.
Under the new rules announced in the 2012 budget a breach of the concessional contributons caps of up to $10,000 may be refunded to eligible individuals.
The ability to have this money refunded is a one-time option only and will apply to contributions made after 1 July 2011.
“The refund offer will be automatically offered to eligible individuals by the ATO (Australian Taxation Office), and funds will be able to use existing administrative processes. This will minimise the compliance cost on the industry and individuals,” Minister for Financial Services and Superannuation Bill Shorten said.
By Darin Tyson-Chan