During the lead up to the end of the financial year, many DIY super funds trustees are implementing new financial strategies. Because of this, there may be times when a super fund is short of cash. Unfortunately, there are only limited circumstances in which a fund can borrow to make up for this, whether from a trustee or a bank.
One scenario where a short-term loan may be allowed, arises when a fund is in trouble during the process of settling an investment purchase, such as shares. If some shares are sold and others bought, yet the cash for the first transaction has been slow in coming, then it is possible that a short term loan could be procured. The loan period should not exceed seven working days and the amount should be no more than 10 per cent of the all the assets of the fund.
Another possible scenario occurs where a trustee is required by law, or by the fund’s rules, to pay a benefit to a member or a tax liability for which the fund does not immediately have the cash. The fund can borrow so long as the period of the loan does not exceed 90 days and the total amount borrowed is no more than 10 per cent of the value of the total fund assets.
If any loan is made, it is essential that the fund take all means to ensure that money is freed up to pay off the loan. It is a breach of super fund rules for the fund’s account to be in deficit for longer than seven days. The rules indicate that loaning money to super funds can only occur in unexpected situations. It is important to get advice if a super fund is in the red, especially as the end of the year approaches.
Speak with one of our Newcastle financial advisors to gain professional financial advice.
This article is for guidance only, and professional advice should be obtained before acting on any advice herein. Neither the publisher Leenane Templeton The Self Managed Super Specialists nor the distributors can accept any responsibility for loss occasioned to any person as a result of action taken or refrained from in consequence of the contents of this publication. See "Self managed super funds" website for further information. This article relates to Australia, NSW and does not take into account any legislative or other changes made after 1 April 2011.