Self-managed super funds (SMSFs) are a popular choice for Australians looking to take control of their retirement savings. However, strict regulations govern how SMSFs can invest their funds, and one key area of concern is in-house assets.
What Are In-House Assets?
An in-house asset is an investment made by an SMSF in a related party of the fund. This includes:
- Loans to members or related entities.
- Investments in related trusts or companies.
- Use of SMSF-owned property by a related party.
The in-house asset rule exists to ensure that SMSF investments are used for genuine retirement purposes rather than personal or business benefits before retirement.
The 5% Rule
The Superannuation Industry (Supervision) Act 1993 (SIS Act) limits in-house assets to 5% of the fund’s total assets. If an SMSF exceeds this limit, corrective action must be taken to reduce in-house assets below the threshold.
Common Mistakes
- Loaning money to members or related parties, which is strictly prohibited.
- Investing too much in related companies or trusts.
- Using SMSF-owned property for personal or business purposes without meeting strict criteria.
Key Takeaways
- SMSFs must ensure that in-house assets do not exceed 5% of the fund’s value.
- Breaching the in-house asset rule can lead to penalties and compliance issues.
- SMSF trustees should seek professional advice before engaging in transactions involving related parties.
By understanding and adhering to the in-house asset rules, SMSF trustees can ensure compliance while optimising their retirement savings.