Section 65 of the Superannuation Industry (Supervision) Act 1993 (SIS Act), provides that a trustee of an SMSF must not lend money or give any ‘other financial assistance’ to a member of the fund or a relative of a member of the fund. 

The concept of ‘financial assistance’ encompasses not only the provision of loans and other dispositions of money and property. It also extends to the giving of a guarantee, indemnity, security or charge or the taking on of any obligation or arrangement which objectively is in substance to providing financial assistance using the resources of the SMSF. The courts have found financial assistance to be given in the following situations:

• •   the provision of a gift;
• •   the purchase of an asset at greater than market value;
• •   the acquisition of services;
• •   forgiving a debt or financial obligation; and
• •   offering a guarantee or security over assets.

Indirect financial assistance through the use of third parties is also prohibited.  Further, there does not have to be any effect on the net assets of the fund, merely that the fund’s assets were relied on in the provision of the assistance.