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Jayni Patel

May 15, 2023

Land in Exchange of loan

in SMSF Technical Forum

SMSF is planning to give a loan to a land developer with an interest rate of 9%.

Once the Land development is done, the developer will issue land to the SMSF in exchange of a loan. till the time the land developer will pay the interest to the SMSF.

Thoughts from Audit perspective, please.

2 comments

Comments (2)

THE AUDITORS INSTITUTE

May 15, 2023

Hi Jayni

Thanks, I assume the land developer is not a related party. If the land developer was a related party then the loan would be an in-house asset and depending on the value of the loan the Fund may be in breach of the in-house asset rules (section 82 - 85 of SIS).

If the developer is not a related party as long as it is done on a commercial / arm's length basis the Fund could lend money to the land developer and it could receive land in exchange for the loan.

The commercial / arm's length requirement is covered by section 109 of SIS.

Other sections to consider are:

1) Section 62 - sole purpose test.

2) Section 65 - trustee cannot lend / provide financial assistance to a member / relative.

3) Regulation 4.09 - the investment transaction must comply with the Fund's investment strategy.

You should also refer to SMSFRB 2020/1 - Self-managed superannuation funds and property development.

Thanks

SMSF AAA

Jayni Patel

May 15, 2023

Replying to

Tysm. Yes, not a related party transaction.