For several years, breaching the in-house asset rules and the prohibition on lending to a fund member or a relative of a fund member or providing financial assistance to a fund member or their relative using the financial resources of the fund, have consistently been in the top three audit contraventions. They are also contraventions that carry the most SMSF administrative penalty points, being 60 penalty points.
An aspect of these two rules, that can be commonly misunderstood, is how they interact with each other. Whilst the in-house asset rules effectively provide a 5% allowance for a loan from an SMSF to a related party, where that related party is an individual, for example a sole trader or an individual partner in a partnership, the prohibition on lending to a member or a relative of a member will also have application. The sole purpose test must also be considered.