Self-Managed Super Fund (SMSF) Related Party Transactions

  • Ashwin RamdasAshwin Ramdas
  • Updated Jun 15, 2023

  • Mate Checked

    This information has been reviewed by our SMSF Mates before it was published as part of our review process.

A related party of a self-managed superannuation fund is any person or entity who is somehow connected to the fund. This includes, but is not limited to, the fund’s trustees, members, directors, officers, and relatives of these people. The definition of a related party also extends to businesses and other entities that are controlled by, or under common control with, the SMSF or its trustees and are governed by the in-house asset rules. Related parties also include any person or entity who provides services to the SMSF, such as an accountant or financial adviser.

There are several types of transactions that can only be entered into between an SMSF and a related party if certain conditions are met. These conditions are designed to ensure that the SMSF is not used to benefit a related party at the expense of the other members of the fund.

SMSF related parties and relatives

If you are a member of an SMSF, you are considered to be a related party to the fund. This means that there are restrictions on certain transactions between the SMSF and related parties. These restrictions are in place to ensure that SMSF members do not use their fund to unfairly advantage themselves or their relatives.

There are two types of relatives that are relevant for the purposes of SMSFs:

  • Lineal descendants: this includes your children, grandchildren and great-grandchildren (including step-children, adopted children and foster children).
  • Spouse: this includes your husband, wife or de facto partner (including same-sex partners).

Some common examples of transactions involving related parties that may be restricted between an SMSF and a related party include:

  • Selling or leasing property to the SMSF
  • Borrowing money from the SMSF
  • Providing goods or services to the SMSF
  • invest in an asset with the SMSF. Related parties are also generally restricted from being SMSF trustees or directors.

If you are thinking about entering into a transaction with your SMSF, it is important to seek advice from a qualified financial advisor to ensure that you comply with the in-house asset rules and super regulations.

What is a related party of an SMSF?

A related party of an SMSF is any individual or entity who is either a trustee or beneficiary of the fund or has a close relationship with the trustees or beneficiaries. This includes family members, business partners and close friends.

Related party transactions can take many different forms, but all have the potential to create conflict of interest situations that could jeopardise the fairness and integrity of the superannuation system.

The most common type of related party transaction is where one party provides goods or services to the fund in exchange for payment from the fund’s assets. These transactions must be at arms-length in order to avoid any potential conflicts of interest.

Another common type of related party transaction is where a trustee or beneficiary loans money to or borrows money from, the fund. These transactions also need to be at arms-length and on commercial terms in order to avoid any potential conflict of interest.

Some examples of transactions that may require special treatment if entered into between an SMSF and a related party include:

  • Loans and financial assistance
  • Acquisition or disposal of assets
  • Leases and tenancy arrangements
  • Hiring of services
  • Investment management arrangements.

If you are thinking of entering into any type of transaction with a related party of your SMSF, it is important to seek professional advice to ensure that you comply with the relevant laws and regulations.

Can an SMSF buy from a related party?

An SMSF can buy from a related party, but there are some conditions that must be met in order for the transaction to be considered compliant. The most important condition is that the purchase must be at arm’s length. This means that the parties involved in the transaction must act in their own best interests, and not in a way that would benefit either party more than the other.

If the SMSF is buying an asset from a related party, the price of the asset must be fair market value. This can be difficult to determine if there is no comparable market for the asset, but there are some methods that can be used to estimate fair market value.

The other main condition that must be met when an SMSF buys from a related party is that the transaction must be in the best interests of the fund. This means that the purchase must be made for a valid purpose and that it must be beneficial to the SMSF as a whole.

If you’re thinking of buying an asset from a related party, it’s important to get professional advice to make sure that the transaction is compliant.

What are the related party exemptions for self-managed super funds?

The related party exemption is a rule that allows SMSFs to invest in assets held by related parties, provided certain conditions are met.

The main condition is that the asset must be acquired at market value, and must not be acquired from a related party who is also a trustee or member of the SMSF.

If these conditions are met, then the investment is exempt from the general prohibition on investing in assets held by related parties.

The exemption applies to a wide range of investments, including shares, property and businesses.

The purpose of the exemption is to allow SMSFs to invest in a wider range of assets than would otherwise be possible, and to provide flexibility for trustees when making investment decisions.

The exemption is subject to a number of other conditions, including the requirement that the investment must be in the best interests of the fund and its members.

The exemption is also subject to disclosure requirements so that members are aware of the investment and can make an informed decision about whether or not to approve it.

Can an SMSF lease property to a related party?

If the property is leased to a related party, the terms of the lease must be on an arm’s length basis. This means that the rental amount must be reasonable and reflect what would be paid by an unrelated party in the same market circumstances.

The other key condition is that the SMSF trustee cannot derive any personal benefit from the lease arrangement. For example, they cannot live in the property or use it for business purposes.

If these conditions are met, then leasing a property to a related party can be a good way to generate income for your SMSF. However, it’s important to seek professional advice before entering into any such arrangement.

What NOT to do with your SMSF related parties?

There are a few things you should avoid doing with your SMSF related parties. Here are a few examples:

  • Do not use your SMSF to invest in assets that are not allowed by the ATO. This includes things like collectibles and personal use assets.
  • Do not lend money to, or borrow money from, your SMSF related parties.
  • Do not provide financial assistance to your SMSF related parties.
  • Do not enter into any transactions with your SMSF related parties that could result in a breach of the super laws.
General Advice Warning

Ashwin Ramdas

Eventum Consulting

Ashwin is an accountant and educator based in Perth, Western Australia. He is passionate about helping family owned businesses and startups. He is one of the founders of SMSF Mate and you’ll regularly see him on our podcast!

Ashwin is a managing owner and director of Eventum Consulting, a multidisciplinary firm helping clients with finance, succession planning and their tax needs. He also served as a lecturer in taxation and small business at the Central Institute of Technology, and has worked as an accountant at a number of well-known tax specialists.

Ashwin studied a Diploma of Business Education and a Bachelor of Commerce in Financial Accounting, Managerial Accounting and Corporate Finance, both at Curtin University, WA.

Ashwin is passionate about technology, and sees it as an enabler for his clients to grow truly sustainable and profitable businesses.

You can find out more about Ashwin or connect with him on Linkedin here:

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  • SMSF Mate is a unique website because it has ideas about how to approach SMSFs, insurance and other financial topics that come straight from first hand experience. It's much more useful than what you find on all the other financial websites that just offer generic info that you could easily get on the ATO's website. It's also nice to know there's no financial incentive behind the information, it's legitimately there to help people understand self-managed super funds and how to get the most out of them, not to get an affiliate commission from a broker or other financial services provider. The investment product information is also incredibly useful, I've never seen this kind of functionality on any other website that let's you look at such a wide range of products, sort by what info is most interesting or important to you, and subscribe to updates for different funds and financial products all in one place. Definitely worth checking out if you own or are considering an SMSF!

    David G, Self-Employed, SMSF Owner
  • SMSF Mate provides a unique insight into superannuation and financial topics in a way that is easier to understand than conventional websites. The colloquial nature of the site makes it easy to understand and they often speak about complicated topics in lamens terms so I can wrap my head around them. The investment product information is a great way to research funds that I am interested in investing in with my SMSF and there is a lot of helpful information on the site for better structuring my investment portfolio. In comparison to other websites which offer similar information, SMSF Mate excels as the information is free to access whereas many other sites charge a subscription fee for the same thing. Overall, I think SMSF Mate is a great resource for SMSF trustees and is worth looking at for a variety of super-related topics. Thanks.

    Tim B, Business Owner, SMSF Trustee