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It is my understanding that according to S67 of the SIS ACT an SMSF is not prohibited engaging in a temporary borrowing if the purpose of the borrowing is to enable the trustee to make a payment to a beneficiary which the trustee is required to make by law or by the governing rules. This is on the condition that the Trustee would not be able to make the payment, without the borrowing, it does not exceed 10% of the funds total assets and doesn’t exceed a period of 90 days.
My question is, would amounts of tax due and payable by the fund come under this exception? Or is the “beneficiary” referred to, limited to a member or a death benefit recipient?
Hi Anne
Yes agreed Section67(2) of SIS allows a SMSF to borrow to make a payment to a beneficiary if it is for less than 90 days & less than 10% of the Fund's assets.
A beneficiary is defined in SIS section 10 as a "person (whether described in the governing rules as a member, a depositor or otherwise) who has a beneficial interest in the fund".
As a result the borrowing cannot be for paying tax under this section. A payment of tax is not a payment to a beneficiary.
Thanks
SMSF AAA