If you’re managing a Self-Managed Super Fund (SMSF), you’ve probably wondered about the flexibility you have when it comes to borrowing and lending. After all, one of the biggest appeals of an SMSF is the control it gives you over your retirement savings. You get to make the investment decisions, choose your assets, and build a portfolio that aligns with your financial goals.
At Aries Financial, we’ve spent years specializing in SMSF lending, helping trustees navigate the complex landscape of property investment through their superannuation. We understand that with great control comes great responsibility—and a lot of questions. One question we hear repeatedly is: ““Can my SMSF borrow money from me or other members?”“
The answer might surprise you. Let’s dive into the truth about related party loans and what the Australian Taxation Office (ATO) rules really say about SMSF borrowing.
The Short Answer: No, Your SMSF Cannot Borrow from You
Here’s the straightforward truth that catches many SMSF trustees off guard: your SMSF cannot borrow money directly from its members. This restriction is firmly established in the Superannuation Industry (Supervision) Act 1993, and the ATO takes it very seriously.
Think about it this way—your SMSF is designed to be a separate legal entity from you personally. It exists to provide retirement benefits, not to serve as your personal piggy bank or a convenient source of capital. The ATO has implemented strict regulations to prevent members from using their super funds in ways that could jeopardize their retirement savings or create unfair tax advantages.
So if you were thinking about lending money to your SMSF to help with a property purchase or to cover expenses, you’ll need to think again. The prohibition extends beyond just borrowing—your SMSF also cannot provide loans to you or your relatives. This means no using your SMSF as a guarantor for personal loans, no lending from the fund to yourself, and no direct or indirect financial assistance to members or their families.
The penalties for breaking these rules can be severe. We’ve seen trustees face significant financial consequences, including loss of tax concessions, penalty units, and even potential disqualification as trustees. The ATO doesn’t take these violations lightly because they undermine the fundamental purpose of superannuation.
Understanding Who Counts as a Related Party
Now, before you think this means your SMSF can never engage with anyone you know, let’s clarify what actually constitutes a “related party” and when certain transactions might be permissible.
A related party in the context of SMSFs includes:
- Members of the SMSF – that’s you and anyone else who has an account in the fund
- Relatives of members – this includes spouses, parents, children, siblings, and even step-relations
- Business partners – people you’re in business with
- Entities controlled by members or relatives – companies or trusts where you or your relatives have significant influence
Here’s where it gets interesting. While your SMSF can’t borrow money from members directly, it can borrow from certain related parties under very specific circumstances. The key is understanding the difference between what’s prohibited and what’s allowed under controlled conditions.
For instance, if you have a family trust or a company that’s separate from the SMSF members, that entity could potentially lend to your SMSF—but only if the arrangement meets strict criteria. The loan must be on commercial terms (more on this shortly), properly documented, and cannot exceed 5% of your fund’s total assets. This is known as the “in-house asset” rule.
Let’s say your SMSF has total assets worth $1 million. Any loan from a related party entity cannot exceed $50,000, or 5% of that total value. This limit is calculated at 30 June each financial year, and exceeding it can result in significant penalties and compliance issues.
At Aries Financial, we regularly work with trustees who are navigating these related party considerations. Our expertise in SMSF compliance ensures that every transaction is structured correctly from the start, protecting your retirement savings and keeping you on the right side of ATO regulations.
What Does “Commercial Terms” Really Mean?
You’ll often hear the phrase “commercial terms” when discussing SMSF transactions with related parties. But what does this actually mean in practice?
Commercial terms means that any transaction between your SMSF and a related party must be conducted as if you were dealing with a completely unrelated third party in the open market. Think of it this way: if you wouldn’t accept those same terms from a stranger, your SMSF shouldn’t accept them from a related party either.
For SMSF loans specifically, commercial terms include:
Market-rate interest – The interest rate charged must reflect what’s available in the broader lending market. The ATO provides safe harbour interest rates each year to guide trustees. For the 2025/26 financial year, the safe harbour rate is 8.95% for property and 10.95% for listed securities. If you’re charging less than these rates, you need solid evidence that your rate is still commercially reasonable.
Proper documentation – Every loan must be documented with a formal loan agreement. This isn’t a handshake deal or a casual arrangement. You need a written contract that specifies the loan amount, interest rate, repayment terms, security arrangements, and default provisions.
Realistic repayment schedules – The loan must have a repayment schedule that your SMSF can actually meet. You can’t set up a loan with payments that would drain your fund’s cash flow or prevent it from meeting member benefits.
Appropriate security – If the loan would typically be secured in the open market, it should be secured in your related party arrangement as well.
This emphasis on commercial terms aligns perfectly with Aries Financial’s philosophy of integrity and transparency in SMSF lending. We believe that maintaining these standards isn’t just about compliance—it’s about protecting your long-term financial interests. When you treat your SMSF transactions as seriously as any commercial arrangement, you’re building a solid foundation for retirement wealth.
Consider this real-world example: Sarah wanted her family trust to lend $40,000 to her SMSF to help with a property deposit. The SMSF had total assets of $950,000, so the loan would be within the 5% in-house asset limit. However, Sarah initially proposed an interest rate of just 2% because “it’s family money.”
We advised Sarah that this rate was well below commercial terms and could trigger ATO scrutiny. Instead, we helped her structure the loan at 8.95% with proper documentation, regular monthly payments, and security over the property being purchased. This approach satisfied ATO requirements while still allowing Sarah’s SMSF to proceed with the investment. Three years later, the property has appreciated significantly, and Sarah’s SMSF is building strong retirement wealth—all while remaining fully compliant.
The Serious Consequences of Non-Compliance
Understanding the rules is one thing, but appreciating why they matter is equally important. The consequences of non-compliance with SMSF lending rules can be devastating to your retirement plans.
Financial penalties are often the first consequence trustees face. The ATO can impose administrative penalties ranging from several thousand dollars to much more, depending on the severity of the breach. These penalties come directly from your pocket, not from the SMSF, adding insult to injury.
More seriously, your SMSF could lose its complying status. This is a nuclear option that strips away all the tax concessions that make superannuation such an attractive investment vehicle. Instead of paying 15% tax on income and 10% on capital gains, your fund could be taxed at the top marginal rate—potentially 47% including Medicare levy. The financial impact of this alone could devastate decades of careful retirement planning.
There’s also the risk of having transactions declared as “in-house assets” that breach the 5% limit. If this happens, your fund has 12 months to rectify the situation. Failure to do so results in penalties of up to $14,800 and potential disqualification as a trustee.
Beyond the financial implications, trustees can face personal consequences. The ATO has the power to disqualify trustees who repeatedly breach SMSF rules or who engage in serious violations. This means you could lose the ability to manage your own retirement savings—a devastating outcome for anyone who chose the SMSF structure specifically for that control.
We’ve seen trustees who thought they were being clever by “working around” the rules, only to face audits that uncovered their arrangements. One case involved a trustee who had his SMSF borrow $150,000 from him personally at 1% interest to purchase an investment property. When the ATO audit revealed this arrangement, the fund lost its complying status for two years. The additional tax burden exceeded $80,000, and the trustee faced personal penalties. The property investment itself was sound and performed well, but the improper loan structure completely undermined those gains.
This is why at Aries Financial, we emphasize the importance of seeking expert guidance before structuring any SMSF transaction. Our role isn’t just to provide competitive loan rates—starting from 5.99% PI—but to ensure that every aspect of your SMSF borrowing is structured correctly. We empower our clients with knowledge and support, helping them understand not just what they can do, but how to do it properly.
Prevention is always better than cure when it comes to SMSF compliance. The cost of proper advice upfront is minuscule compared to the potential consequences of getting it wrong.
The Right Way to Borrow for Your SMSF
So if your SMSF can’t borrow money from members, what are your options for property investment? This is where Limited Recourse Borrowing Arrangements (LRBAs) come into play.
An LRBA is a specific type of loan structure that allows your SMSF to borrow money to acquire assets—typically property—while protecting the rest of your fund’s assets if something goes wrong. These arrangements must be made with unrelated lenders or, in limited circumstances, with related parties who meet strict compliance requirements.
Here’s how it works: Your SMSF borrows money from a compliant lender through a separate custodian trust. The purchased property is held in this trust until the loan is fully repaid, following strict ATO rules for entering an LRBA. If your SMSF defaults on the loan, the lender’s recourse is limited to the asset purchased—they can’t access other assets in your SMSF. This protection is why these arrangements are called “limited recourse.”
At Aries Financial, we specialize in these types of loans, with fast approvals typically within 1-3 business days. We understand that timing can be critical in property investment, and our streamlined process helps trustees move quickly when the right opportunity presents itself.
The key benefits of working with a specialized SMSF lender like Aries Financial include:
Expertise in compliance – We know the SIS Act inside and out, ensuring your borrowing structure meets all ATO requirements from day one.
Competitive rates – Our rates start from 5.99% PI, making property investment through your SMSF more accessible and affordable.
Specialized knowledge – Unlike general lenders, we focus exclusively on SMSF lending, meaning we understand the unique considerations and opportunities in this space.
Educational approach – We don’t just provide loans; we help trustees understand their options and make informed decisions aligned with their retirement goals.
This approach embodies our core philosophy of empowerment. We believe that informed trustees make better investment decisions, and better decisions lead to more secure retirement outcomes.
Building Long-Term Wealth Through Strategic SMSF Property Investment
The restrictions on borrowing from members might seem limiting, but they’re actually designed to protect your retirement savings and ensure your SMSF operates with integrity. When you work within these rules and structure your borrowing properly, you open up significant opportunities for wealth creation.
Property investment through SMSFs has been one of the most successful strategies for building retirement wealth in Australia. The combination of property appreciation, rental income, and the tax advantages of superannuation creates a powerful wealth-building engine. When you leverage your SMSF borrowing capacity properly—through compliant structures and expert guidance—you position yourself for long-term financial success.
Consider the broader picture: Your SMSF isn’t just about the next few years; it’s about ensuring you have sufficient funds to support yourself through retirement, potentially for several decades. Every decision you make today impacts that future security. This is why compliance isn’t just a box-ticking exercise—it’s fundamental to protecting your financial future.
At Aries Financial, we’ve helped countless trustees navigate the complexities of SMSF property investment. We’ve seen firsthand how proper structuring, combined with strategic asset selection, can transform retirement outcomes. Our vision is to be Australia’s most trusted SMSF lending specialist, and we achieve this by maintaining the highest standards of integrity, expertise, and customer service.
Moving Forward with Confidence
So, can SMSF borrow money from members? The answer is a clear no—but that doesn’t mean your options are limited. By understanding the rules around related party transactions, maintaining commercial terms in all dealings, and working with specialized lenders who understand SMSF compliance, you can leverage your retirement savings to build substantial wealth through property investment.
The key is approaching SMSF lending with the right perspective. These aren’t arbitrary rules designed to frustrate you; they’re protective measures that preserve the integrity of Australia’s superannuation system while safeguarding your retirement future. When you embrace compliance as a foundation for smart investment rather than an obstacle, you unlock the true potential of your SMSF.
If you’re considering property investment through your SMSF, don’t try to navigate these waters alone. The complexity of SMSF regulations, combined with the serious consequences of non-compliance, makes professional guidance essential. At Aries Financial, we’re here to help you maximize your financial future securely, with competitive rates, fast approvals, and expert knowledge you can trust.
Your retirement deserves nothing less than a strategy built on integrity, expertise, and empowerment. Let us help you build that future, one compliant and strategic investment at a time.
