As the holiday season rolls around you or your clients might be thinking of gifting assets from your SMSF. It might sound generous, but it could land you in serious trouble. Here’s what the law says and why compliance matters.

 

Why Gifting is Restricted in SMSFs

At the heart of every Self-Managed Super Fund (SMSF) is the Sole Purpose Test, a legal requirement that ensures your fund exists exclusively to provide retirement benefits to its members. This principle is enshrined in the Superannuation Industry (Supervision) Act 1993 (SIS Act) and underpins every decision trustees make.

Gifting assets or money from your SMSF, no matter how well-intentioned, breaches this test. Why? Because the moment your fund provides financial assistance to a member or their relatives, it stops serving its sole purpose and becomes a source of personal benefit. This is explicitly prohibited under Section 65 of the SIS Act, which states that an SMSF must not lend money, give property, or offer any form of financial help to members or their family.

In short, your SMSF is not a family bank or a vehicle for generosity, it’s a regulated retirement savings structure. Any deviation from this purpose can trigger severe compliance consequences, including hefty penalties and loss of the fund’s tax concessions.

 

What Counts as a Gift or Financial Assistance?

Financial assistance is broad and goes well beyond handing over cash. Common examples include:

  • Direct gifts or loans of money or assets from the fund to a member or relative.
  • Selling below market value or buying above market value in related‑party transactions.
  • Using SMSF assets as security (e.g., guaranteeing a personal loan).
  • Indirect arrangements—such as transferring to a third party who then passes the benefit to a relative.
  • Overpaying a member/relative for services or allowing a related party to skip rent on fund‑owned property without enforcement.

These actions provide a present‑day benefit and breach s65 even if the intent is benevolent. Trustees must ensure all transactions are at commercial, arm’s‑length terms and deliver no current benefit to anyone associated with the fund.

 

Who is Considered a Relative?

Under the SIS Act, the term relative is defined broadly. Here’s the full list of who is considered a relative for SMSF compliance purposes:

  • Parents, grandparents
  • Children (including adopted and stepchildren)
  • Siblings
  • Uncles, aunts, nephews, nieces
  • Spouse of the member, and spouses of the above relatives
  • Business partners of the member, their spouses and children
  • Certain companies or trusts a member or their associates control or influence

Essentially, it covers direct family, extended family, and certain business relationships.

 

Penalties for Breaching the Rules

Breaches can be costly and long‑lasting:

  • Administrative penalties per trustee (indexed penalty units; recent guidance places these in the thousands).
  • The fund’s income can be taxed at 45% if deemed non‑complying.
  • Trustees can face disqualification, rectification directions, and, in severe cases, prosecution.
  • The ATO may require remediation (e.g., reversing the transaction, making good any losses) and can publicly flag compliance issues.

Trustees should view s65 contraventions as high‑risk: even small “gifts” can snowball into tax and regulatory fallout far exceeding the value originally transferred.

 

Are There Any Exceptions?

There is no exception that allows a gift. However, arm’s‑length transactions with members or related parties may be possible if they comply with other SMSF rules. For example, selling an SMSF asset to a related party at independent market value, on commercial terms, and without providing finance or guarantees may be permissible in limited circumstances (subject to acquisition restrictions, collectables rules, in‑house asset limits, and business real property exceptions).

Key guardrails to check before any related‑party dealing:

  • Acquisition and disposal restrictions (e.g., you generally cannot acquire assets from members/relatives; limited exceptions apply for business real property).
  • Arm’s‑length terms—documented valuation, commercial pricing, no concessional finance.
  • In‑house asset cap (5%) and look‑through rules.
  • Collectables and personal‑use assets use/storage/display restrictions.
  • No present‑day benefit to anyone associated with the fund.

Because exceptions are narrow and fact‑specific, obtain professional advice and keep robust documentation whenever contemplating a related‑party transaction.

 

Real‑World Scenarios
  • Artwork “gift”:
    • An SMSF holds a painting.
    • A trustee transfers it to her daughter for a birthday. Breach, direct gift.
    • To comply, the daughter must first pay independent market value to the fund; even then, check collectable rules on acquisition/disposal.
  • Rent holiday:
    • A related‑party business leases SMSF property and misses rent;
    • the trustees do nothing. Breach, financial assistance.
    • Enforce the lease, collect arrears, and document actions.
  • Vendor finance:
    • SMSF sells land to a member’s son at market value but allows interest‑free instalments. Breach, loan/assistance.
    • Payment should be upfront or via commercial finance unrelated to the SMSF.

 

Compliance Checklist for Trustees

  • Do not gift money or assets from the SMSF… ever.
  • Avoid indirect assistance via third parties or “creative” structures.
  • Arm’s‑length everything: independent valuation, commercial terms, proper contracts.
  • Document decisions: minutes, valuations, legal and tax advice.
  • Review investment restrictions before any related‑party dealing.
  • Engage your auditor early on unusual transactions; fix issues promptly

 

Bottom Line

An SMSF is not a family bank. Gifting (whether cash, property, or a concession) breaches fundamental rules designed to protect retirement savings. Keep transactions strictly commercial, avoid present‑day benefits, and when in doubt, use personal assets (not the SMSF) to help loved ones. Proactive compliance protects the fund’s concessional tax status and your members’ future.

 

💡 Need help navigating SMSF technical Complexities?

Our team of SMSF experts is here to help you gain strategic insights, avoid pitfalls, find answers to essential questions, and stay compliant and confident. Book a consultation today or call us on 1300 023 170.

 

Disclaimer: General information only. SuperConcepts does not provide financial product advice. Consider your circumstances and seek licensed advice where appropriate.