Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 133

SMSFs can lend to some relatives

I have always found it odd that SMSF members can have their SMSF trustee provide financial assistance to the members’ cousins and former spouses, just not to other relatives. How is this possible?

Who is a relative?

It’s not clear if it was intended but there is a loophole in the superannuation law. The law prohibits SMSF members from providing financial assistance to members and relatives of the members of an SMSF. However, the definition of a ‘relative’ of a member of an SMSF is a parent, grandparent, brother, sister, uncle, aunt, nephew, niece, lineal descendant or adopted child of the individual or of his or her spouse; or, a spouse of the individual or of any other individual referred previously.

As examples, cousins and former spouses are not mentioned. Therefore, SMSF trustees can provide financial assistance to their cousins and former spouses as long as the terms of financial assistance are at arm’s length and in accordance with their SMSF’s investment strategy. This means the loan should be documented so that it is enforceable by the SMSF trustees should there be a problem and interest at the market rate must be charged on the loan.

You may think that cousins and former spouses are included in the definition of a related party somewhere under the superannuation law. In fact, they are. Cousins and former spouses are included in the section which outlines who an individual can establish an SMSF with. This area of the law states that you can establish an SMSF with a relative. Here, the definition of a ‘relative’ of an SMSF member is a parent, child, grandparent, grandchild, sibling, aunt, uncle, great-aunt, great-uncle, niece, nephew, first cousin or second cousin of the individual or of his or her spouse or former spouse; or, a spouse or former spouse of the individual, or of an individual referred to previously.

As long as none of the members of an SMSF is a child of a cousin or of a former spouse; and, none of the other members of the SMSF is directly related to the cousins such as being the spouse of the cousin or being a parent of the cousins, the SMSF would not be prohibited from providing financial assistance to these people. Otherwise they will fall within the parameters of being a ‘relative’ due to the parent relationship or spousal relationship existing between the two parties.

Always check the related party rules

I love working with the superannuation law, but when an important defining term can include one relationship under one area of the law and exclude it in another, I can understand why many people find it frustrating. These inconsistencies seem odd, and it does make understanding tricky for the average SMSF investor. The important thing to remember here is that it’s always best to talk to an SMSF specialist before proceeding with any related party transactions.

 

Monica Rule is an SMSF specialist and author, see www.monicarule.com.au.

 

  •   6 November 2015
  •      
  •   

 

Leave a Comment:

RELATED ARTICLES

Ensure death benefit nominations are upheld

SMSFs need care dealing with related parties

Watch SMSF borrowing rules for separate assets

banner

Most viewed in recent weeks

Little‑known government scheme can help retirees tap into $3 trillion of housing wealth

The Home Equity Access Scheme in Australia allows older homeowners to tap into their home equity for retirement income, yet remains underused due to lack of awareness and its perceived complexity.

Origins of the mislabeled capital gains tax ‘discount’

Debate over the CGT discount is intensifying amid concerns about intergenerational equity and housing affordability. This analysis shows that the 'discount' does not necessarily favor property investors.

2 billion reasons to fix retirement income

A proposal to address Australia's 'stranded balances' in retirement by requiring super funds to transition members to pension phase at 65, boosting retirement income and reframing super as a source of income.

The ultimate superannuation EOFY checklist 2026

Here is a checklist of 28 important issues you should address before June 30 to ensure your SMSF or other super fund is in order and that you are making the most of the strategies available.

Div 296 may mean your estate pays tax on assets your beneficiaries never receive

The new super tax, applying from 1 July, introduces more than just a higher rate on large balances. It brings into focus a misalignment between where wealth sits and where the tax on that wealth ultimately falls.

Do super funds need a massive wake up call?

UK retirement expert, Guy Opperman, believes super funds are failing at supporting members in deaccumulation. Here is what Australia should do about it. 

Latest Updates

Retirement

How inflation is quietly moving the goalposts on retirement

Inflation doesn’t just raise today’s bills - it quietly increases the amount needed to retire, while simultaneously making it harder to save. Three steps to take before June 30th to improve retirement outcomes.

Investment strategies

Three strategies for investing amid AI whiplash

AI fears have shifted from bubble talk to disruption anxiety, driving investors toward asset-heavy, 'AI-resistant' businesses while punishing many software and service firms. This environment may be ripe for stock pickers.

Investment strategies

Are private market assets the answer in an unstable world?

Private markets can offer diversification and return potential, but their opacity, scale and wide dispersion of outcomes make manager selection and due diligence critical for non‑institutional investors.

Property

Mispriced in plain sight: The case for Global REITs

Global REITs have fallen out of favour, trading at deep discounts after years of underperformance, despite resilient earnings and improving fundamentals.

Investment strategies

Survival is the only success

True financial success isn’t about how much you make, but whether you can sustain it — survival is the only win that matters.

Investment strategies

$42 billion too late

Why Australia's biggest energy bet may already be redundant while a less celebrated government program is exceeding expectations. 

Investment strategies

Do investors accept lower returns from assets that make them feel good?

Assets that deliver emotional satisfaction tend to offer lower financial returns, as investors accept an “emotional yield” in place of performance which shapes how investors approach ESG and unpopular assets.

Sponsors

Alliances

© 2026 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.