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

Indexation implications – key changes to 2026/27 super thresholds

Stay on top of the latest changes to superannuation rates and thresholds for 2026, including increases to transfer balance cap, concessional contributions cap, and non-concessional contributions cap.

The refinery problem: A different kind of energy crisis in 2026

The Strait of Hormuz closure due to US-Iran conflict severely disrupted global energy supply chains. While various emergency measures mitigated the crude impact, the refined product market faces unprecedented stress.

3 ways to defuse intergenerational anger

With the upcoming budget increasingly likely to include bold proposals to alter the tax code I’ve outlined three incremental steps with fewer unintended consequences.

The missing 30%: how LIC returns are understated, and why it matters

The perceived underperformance of LICs compared to ETFs is due to existing comparison data excluding crucial information, highlighting the need for proper assessment and transparent reporting.

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.

Welcome to Firstlinks Edition 655 with weekend update

Many investors are on edge as geopolitical turmoil continues to impact markets, often leading to short-sighted actions. These are the three quotes that I’ve relied on during periods of volatility.

  • 26 March 2026

Latest Updates

Retirement

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.

Investment strategies

Not much alpha left in this bet

Google redefined advertising with its innovative business model, but its dominance is now under siege from AI competitors and shifting market dynamics.

Five simple reasons why Australian cash rates are highest

Australians are suffering the highest cash rates amongst their rich country peers for five simple reasons, including outdated inflation targeting and undisciplined monetary and fiscal policies.

Investment strategies

Spending big on AI: So where’s the proof it’s working?

Business leaders must reassess AI's return on investment using new frameworks that reflect productivity, capability shifts and long-term value creation.

Economy

Double down on renewables?

Global volatility has sharpened Australia's focus on energy security. Calls for domestic fuel production clash with renewable energy goals, sparking a debate on balancing traditional and sustainable energy sources effectively.

Investment strategies

Private Credit headwinds move onshore

It’s been a volatile couple of months in markets with the ongoing conflict in Iran. For Australian private credit investors, however, large exposures to real estate lending could mean the worst is yet to come.

Property

Five reasons unlisted commercial property is an attractive allocation in uncertain times

Cromwell takes a look at replacement cost as a practical lens on relative value in commercial property. When build-new costs rise faster than asset pricing, the gap can create opportunities in well-located existing 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.