In short

Section 65 of the SIS Act prohibits an SMSF from lending money to a member or a member's relative or giving them any other financial assistance, including acting as guarantor. Trustees face an administrative penalty of 60 penalty units per contravention, $364 each from 1 July 2026, which cannot be paid from the fund. Serious breaches can make the fund non-complying, taxed at 45%.

A common misunderstanding among self-managed super fund (SMSF) trustees is that the fund's money is theirs to borrow, or to lend to their children, as long as it is paid back with interest. It isn't. The law prohibits an SMSF from lending money to a member or a member's relative, or giving them any other financial assistance, and the penalties fall on the trustees personally. This article explains the rule, what counts as "financial assistance", the penalties and the lawful alternatives.

What does the law say?

Section 65(1) of the Superannuation Industry (Supervision) Act 1993 says the trustee or investment manager of a regulated super fund must not lend money of the fund to a member of the fund or a relative of a member, or give any other financial assistance using the resources of the fund to a member or a relative of a member (SIS Act s 65(1), ATO Legal Database, https://www.ato.gov.au/law/view/document?docid=PAC/19930078/65). It is a civil penalty provision, so contravening it, or being involved in a contravention, can have civil and criminal consequences (s 65(5)).

The only exceptions are for older funds: certain private sector funds established before 16 December 1985 and public sector funds established before 25 May 1988 whose trustees already had power to lend to members before those dates (s 65(2) and (3)). A newly established SMSF has no such exception.

The ATO puts it simply: your SMSF can't provide loans, or direct or indirect financial assistance, to a member or a member's relative, and, for example, can't be used as guarantor for a loan for a member or a member's relative (ATO, https://www.ato.gov.au/individuals-and-families/super-for-individuals-and-families/self-managed-super-funds-smsf/smsf-investing/restrictions-on-smsf-investments/what-are-the-smsf-investment-restrictions).

Who is a "relative"?

The ATO says a relative of a member is a parent, grandparent, brother, sister, uncle, aunt, nephew, niece, lineal descendant or adopted child of the member or their spouse, and a spouse of the member or of any of those people. So the prohibition covers loans to your adult children, your siblings, your in-laws and your spouse's parents, not just to you.

What counts as "financial assistance"?

The Act's wording ("any other financial assistance using the resources of the fund") is deliberately wide. The ATO's examples include:

  • using the fund as guarantor for a loan for a member or a relative;
  • if the fund runs a business, overpaying a member or a relative for their services, or paying a member or relative who is employed more than the standard wage for that type of role.

The ATO's practice statement on administrative penalties treats a trustee's failure to follow up a loan repayment, in accordance with the loan repayment schedule, as a contravention of s 65(1)(b), the financial assistance limb, in addition to the original loan being a contravention of s 65(1)(a) (PS LA 2020/3, https://www.ato.gov.au/law/view/document?docid=PSR/PS20203/NAT/ATO/00001). In its worked example, six missed repayments attracted 6 × 60 = 360 penalty units before any remission. In other words, a "loan" that was documented and repaid late can generate more contraventions, not fewer.

What are the penalties?

Several things can happen, and they can stack:

  • Administrative penalty. The ATO says individual trustees, and directors of a corporate trustee, must pay an administrative penalty of 60 penalty units for a breach of s 65(1). They share joint and several liability, and the penalty cannot be paid or reimbursed from the fund's assets (ATO, https://www.ato.gov.au/individuals-and-families/super-for-individuals-and-families/self-managed-super-funds-smsf/smsf-regulation-and-compliance/smsf-compliance/our-smsf-non-compliance-actions). From 1 July 2026 a penalty unit is $364 (ATO, https://www.ato.gov.au/individuals-and-families/paying-the-ato/interest-and-penalties/penalties/penalty-units; Crimes (Amount of a Penalty Unit) Instrument 2026, https://www.legislation.gov.au/F2026N00424/asmade), so 60 penalty units is $21,840 for one contravention that occurs on or after that date (our arithmetic). The ATO can remit a penalty in full or in part depending on the circumstances.
  • Tax on the amount accessed. The ATO says that where a member has accessed super without meeting a condition of release, the accessed amount is included in their assessable income even if they repay it to the fund later, and they may have to pay additional income tax, shortfall penalties and interest, on top of administrative penalties and potential disqualification (ATO, non-compliance actions page). A "loan" to a member is one way this can arise.
  • Non-complying fund. For serious contraventions the ATO can issue a notice of non-compliance. The fund's assessable income is then taxed at the highest marginal rate, currently 45%, and in the year it becomes non-complying it includes in its assessable income an amount equal to the market value of its total assets less non-taxable contributions (ATO, non-compliance actions page). The ATO says a serious breach could leave a fund losing almost half of its assets in tax.
  • Disqualification. The ATO may disqualify a trustee from acting as a trustee or as a director of a corporate trustee. See our article on the SMSF trustee disqualification and penalty regime.

Worked examples

These are illustrative only and not personal advice.

A deposit for a child. Ravi and Meena's SMSF holds $900,000. Their son needs $60,000 for a home deposit, and they plan to have the fund lend it to him at a market interest rate with a written loan agreement. The son is a lineal descendant of the members, so he is a relative and the loan is prohibited by s 65(1)(a), however commercial the terms. If the fund makes it, the trustees face an administrative penalty of 60 penalty units per contravention and possible non-complying status.

The guarantee. Priya's SMSF offers a term deposit as security for her brother's business loan. The ATO's guidance says the fund can't be used as guarantor for a loan for a member or a member's relative. Offering the fund's assets as security for that loan is the kind of indirect financial assistance the rule targets, even though no money leaves the fund, so this arrangement should not proceed without specialist advice.

The "temporary" withdrawal. Sam is under his preservation age and has not met a condition of release. He takes $40,000 from the fund for a few months and repays it with interest. The ATO says an amount accessed without a condition of release is included in the member's assessable income even if repaid later, so repayment doesn't cure the problem.

What can an SMSF lawfully do instead?

  • Pay benefits when a condition of release is met. If you have met a condition of release, the fund can pay you a benefit; see our articles on preservation age and super access and early release grounds.
  • Invest at arm's length. The ATO says loans the fund makes must be in the best interests of members, comply with the fund's investment strategy and be on a commercial arm's length basis. Lending to a person who is neither a member nor a relative is a different question from s 65, but it still has to meet those tests, and lending to a related company or trust, as distinct from a member or relative, is analysed under the in-house asset rules, where a loan to a related party is an in-house asset subject to the 5% limit (SIS Act s 71(1)). See our article on the 5% in-house asset rule.
  • Keep the sole purpose test in mind. The fund must be maintained for the sole purpose of providing retirement benefits; see our article on the sole purpose test.
  • Get advice before any transaction with a member or family member. Related-party acquisitions have their own rules; see our article on buying assets from related parties.

Sources

Key takeaways

  • Section 65(1) of the SIS Act prohibits an SMSF trustee from lending fund money to a member or a relative of a member, or giving them any other financial assistance using the fund's resources, and the only exceptions are for funds established before 1985 and 1988.
  • Relatives include parents, grandparents, siblings, uncles, aunts, nephews, nieces, lineal descendants and adopted children of the member or their spouse, and their spouses, so loans to adult children are caught.
  • The ATO says the fund can't act as guarantor for a loan for a member or relative, and failing to follow up a loan repayment schedule is treated as a separate contravention of the financial assistance limb.
  • The administrative penalty is 60 penalty units per contravention, which at $364 a unit from 1 July 2026 is $21,840, shared jointly and severally by trustees and not payable from the fund's assets.
  • Money accessed without a condition of release is included in the member's assessable income even if repaid, and a serious breach can make the fund non-complying, with income taxed at 45% and trustees exposed to disqualification.

Frequently asked questions

Can my SMSF lend money to my children?

No. Section 65(1) of the SIS Act prohibits an SMSF from lending money of the fund to a relative of a member, and a lineal descendant such as your child is a relative. The prohibition applies however commercial the terms of the loan.

Can my SMSF guarantee a loan for a family member?

The ATO says an SMSF can't be used as guarantor for a loan for a member or a member's relative. The Act also prohibits giving any other financial assistance using the resources of the fund to a member or a relative.

What is the penalty if my SMSF lends money to a member?

The ATO imposes an administrative penalty of 60 penalty units per contravention of section 65(1) on individual trustees and directors of a corporate trustee, who share joint and several liability. From 1 July 2026 a penalty unit is $364, so 60 units is $21,840. The penalty can't be paid or reimbursed from the fund's assets, and the ATO can remit it in full or in part.

If a member borrows from the SMSF and repays it, is that OK?

No. The ATO says that where a member has accessed super without meeting a condition of release, the accessed amount is included in their assessable income even if they repay it to the fund later, and they may face additional tax, shortfall penalties and interest as well as administrative penalties.

Can a fund be made non-complying for a loan to a member?

Serious contraventions can lead to a notice of non-compliance. The fund's income is then taxed at the highest marginal rate, currently 45%, and in the year it becomes non-complying it includes the market value of its total assets less non-taxable contributions in its assessable income. The ATO says a fund could lose almost half of its assets in tax.

Can an SMSF lend money to anyone at all?

Section 65 bans loans to members and their relatives. Other lending must be in the best interests of members, comply with the fund's investment strategy and be on a commercial arm's length basis, and a loan to a related company or trust is an in-house asset subject to the 5% limit. Get specialist advice before any loan.

A note on advice. This article is general information only and doesn't account for your personal circumstances. Everyone's situation is different — before acting, it's worth talking it through with a licensed adviser who knows your full picture.