Team Intello
Team Intello

Legally Accessing Super Early via an SMSF

There are a number of ways of legally accessing super early via an SMSF. These strategies are useful in times of economic disruption such as the current disruption relating to the Coronavirus (COVID-19) pandemic. Illegitimate early access of super monies via an SMSF is still illegal and carries with it heavy fines as well as potential civil and criminal penalties.  Seeking advice from a specialist SMSF adviser is essential.

Legally Accessing Super Early via an SMSF

The key strategies for legally accessing super pre-retirement from an SMSF in this article are:

  • Loans to related party businesses (including private companies and trusts)
  • Investment into a private company or business (both related and unrelated entities)
  • Payment of Transition to Retirement Income Streams (TRIS)
  • Payment of Temporary Incapacity benefits from an SMSF
  • Purchase of certain assets from SMSF members personally


None of the information provided takes into account your personal objectives, financial situation or needs. You must determine whether the information is appropriate in terms of your particular circumstances. For financial product advice that takes account of your particular objectives, financial situation or needs, you should consider seeking financial advice from a representative of an Australian Financial Services licensee before making a financial decision.


The information contained in this article touches on complex areas of superannuation legislation. Please see advice from an appropriately licensed and qualified SMSF specialist adviser before taking action on any of the strategies contained within this article.

Can my SMSF loan money to my business?

In general, loans to a business operated by members of an SMSF is prohibited and can result in the following administrative fines:

  • Lending to members and relatives – 60 penalty units
  • In-house assets – 60 penalty units

Currently a penalty unit is $210, therefore each breach is $12,600 per trustee and penalties must be paid by the trustee personally (or on behalf of the corporate trustee) and not paid by the SMSF.

The ATO has more information on how they deal with non-compliance on their website: How we deal with non-compliance

There are however certain loans to a related party business that can be made under strict conditions that will not breach these tight rules provided they are correctly put in place. Having your SMSF make a small loan to your business may be a way of legally accessing super early via an SMSF.

The key restrictions are:

  • The loan is made to a company or a trust with a corporate trustee (not to a sole trader business or partnership)
  • The amount of the loan is less than 5% of total fund assets (based on market value)
  • The loan is on arms-length commercial terms
  • The loan is allowable under the trust deed of the SMSF and is included as part of the investment strategy of the SMSF
  • The loan does not breach the sole purpose test

In many cases, a loan of less than 5% of the assets of the SMSF may not be a significant amount.  For an SMSF with a $1 million balance, this only equates to $50,000 which may not be enough for a business owner to survive through an extended business disruption.

One key risk with a 5% loan is what happens when the market value of assets of the SMSF drop, and the loan increases to greater than 5% of the assets of the fund. Where the value of the loan to the related party (i.e. the in-house asset) exceeds 5% of the assets of the fund at the end of the financial year, the trustee(s) of the SMSF must put in place a written plan to rectify the excess by the end of the next financial year.

For example if a loan is made of $50,000 in April 2020 (based on market value of total SMSF assets of $1 million) however the value of all assets drops to $900,000 as at 30 June 2020, before 30 June 2021 the trustees must reduce the loan amount to under 5% again – i.e. the $50,000 would need to be reduced to less than $45,000 to prevent the investment being considered an in-house asset.

Interestingly, based on our research and interpretation ‘total assets’ of an SMSF does not include an loan under a limited recourse borrowing arrangement (LRBA), so an SMSF with a $1 million commercial property with a $600,000 loan outstanding would have total assets of $1 million, not $400,000 as the net asset amount.

In addition to the 5% limit for a loan from an SMSF to a related party, another key aspect that must be complied with is ensuring the loan is at arms-length – i.e. the same rates, repayments and security as a loan from an unrelated lender.  It is the responsibility of the trustee to be able to prove to the independent auditor of the fund as well as (potentially) the ATO as regulator that the loan is on arms-length commercial terms.

Different types of loans will have different characteristics and applicable interest rates.  For example an unsecured loan for working capital purposes will attract a higher interest rate compared to a loan secured against real property or tangible business assets such as equipment or vehicles.

Ensure the loan agreement, loan schedule and ancillary documents such as mortgages and registered charges are all correctly documented and executed. Wherever possible automatic monthly principal and interest repayments should be set up from the business to the SMSF bank account the same as a loan from a third party lender would be.

In addition, the loan must be allowable under the SMSF trust deed, as well as included as part of the investment strategy of the fund meaning both of these documents need to be reviewed and updated where necessary.

The sole purpose test is also important.  Essentially, the sole purpose for an SMSF is to pay retirement or death benefits to members or member beneficiaries of the fund. If a loan is being made to a related party company or trust, and then that money is subsequently paid out to the members of the SMSF or used to benefit them directly in anyway, the sole purpose test is likely breached and the trustee(s) may face significant penalties and compliance action from the ATO.

Can my SMSF lend me money?

No. Your SMSF cannot lend you or any of your relatives money. Making this type of loan must be avoided: it’s not a way of legally accessing super early via an SMSF.

Section 65 of the SIS Act prohibits superannuation funds, including SMSFs, from providing financial assistance to members or their relatives.

The trustee or an investment manager of a regulated superannuation fund (SMSF) must not:

  • lend money of the fund to:
    • a member of the fund; or
    • a relative of a member of the fund; or
  • give any other financial assistance using the resources of the fund to:
    • a member of the fund; or
    • a relative of a member of the fund.

Breaching this provision could lead to an administrative penalty of 60 units ($12,600 per trustee) as well as disqualification from being a trustee of an SMSF and/or civil and criminal penalties.

Can my SMSF invest into my private company business?

Similar to a loan made to a related business, the same restrictions apply to an investment in a related company including a issuing of shares or units in a fixed unit trust. Where the private company is a related party, the investment (purchase of shares) in that company is limited to 5% of the total assets of the fund.

Generally a company will be a related party of an SMSF where the members or their relatives directly or indirectly control more than 50% of the voting interests (shareholdings) in the company.  This definition would include most privately operated family businesses.

Determining whether a company is a related party of the SMSF or not can be complex a specific advice should be sort.  The ATO has more information on related parties on their website here:

ATO – Related parties and relatives

Where a company is not controlled by the members of the fund (and their relatives), it can be considered an non-related party, and the 5% investment limit does not apply.  This could be where two or more unrelated parties have shareholdings in the company but no owners have greater than 50% of the voting rights.

If a business owner needs to inject additional capital into the business, one option is to invite other shareholders, such as senior management or key employees to each take a minority interest to push the existing owners shareholding percentage under 50% and therefore enable both the new and existing shareholders to use an SMSF to invest into the private company.  In this scenario it’s essential to seek specific tax and legal advice on how the additional issue of shares should occur and ensure relevant shareholder agreements are in place.

From a practical perspective, the trustee of the SMSF will need to be able to confirm ownership as well as value of the shares in the private company each financial year.  Ownership of the shares is easily confirmed via share certificates as well as ASIC company searches, however valuations of private companies are difficult where there are not frequent transfers of shares between unrelated parties (i.e. there is no ‘market’).

The time and cost of obtaining a market valuation of the private company shares needs to be taken into account as it could add thousands of dollars in extra fees depending on the type and nature of the business activity undertaken by the company.

It’s also important to check that the company, where it’s running a business and employing the members of the fund that the company is not what’s called a ‘standard employer sponsor’.

This is where an employer makes contributions into the SMSF due to an arrangement the employer has with the SMSF trustee. There is a difference between an employer sponsor and a standard employer sponsor.  Most SMSFs have an employer sponsor that makes contributions into their SMSF due to an arrangement with the member of the SMSF (i.e. the member tells the employer to contribute) and not due to an arrangement the employer has with the SMSF trustee.

Typically the only time that an SMSF has a standard employer sponsor is where the trust deed names one. This was a common feature in very old SMSF trust deeds, however they are sometimes still in place so the trust deed needs to be reviewed.

As with a loan to a related party, the investment in a private company must be allowable under the SMSF trust deed, as well as included as part of the investment strategy of the fund meaning both of these documents need to be reviewed and updated where necessary.

Payment of a TRIS from an SMSF – Transition to Retirement Income Stream

Where a member of an SMSF reaches their preservation age, without the need to retire there is the option of drawing a special type of income from an SMSF called a TRIS – Transition to Retirement Income Stream. A TRIS is probably the most flexible and useful way of legally accessing super early via an SMSF.

Preservation ages are as follows:

Date of birth Preservation age
Before 1 July 1960 55
1 July 1960 – 30 June 1961 56
1 July 1961 – 30 June 1962 57
1 July 1962 – 30 June 1963 58
1 July 1963 – 30 June 1964 59
From 1 July 1964 60

Once preservation age is reached, a member of an SMSF can request the trustee pay them up to 10% of the balance of their account as at either:

  • The start of the financial or,
  • The commencement date of the pension

So whether a pension was commenced on the 1st of July or the 1st of December the maximum amount which could be withdrawn is the same.

Where an individual is under the age of 60 (typically age 58 or 59) any benefits paid are taxable, with a 15% tax offset applied to the ‘taxable component’.  The tax free component is not taxed. Where a member is over the age of 60, any payments from the SMSF are tax free.  A TRIS cannot be converted to a lump sum.

When an SMSF commences to pay a TRIS to a member under 60 (but over preservation age) the SMSF needs to register for PAYG withholding and withhold payments from the members TRIS payments.

A TRIS is not considered a ‘retirement phase benefit’ (pension) therefore the income and capital gains on assets within the SMSF are still taxable as if the member was in accumulation phase.

Interestingly, the 10% maximum that can be drawn from a TRIS applies from either the start of the financial year or from the date of commencement of payment – the maximum is NOT a pro-rata amount meaning regardless of when in the financial year the pension commences, the 10% maximum applies.

For example a member still working but above preservation age with a $500,000 member balance in their SMSF could commence a TRIS on 1 April 2020 and draw $50,000 before 30 June 2020, then draw another 10% of their balance (say $45,000) on 1 July 2020 for the following financial year.

In addition, it’s also possible for a member in receipt of a TRIS to draw their 10% of the year, then request the trustee stop the TRIS and move their benefits back to accumulation. Subsequently there is nothing preventing the member then re-starting another TRIS and withdrawing another 10% in the same financial year.

There an important tax considerations with TRIS income paid from an SMSF, so always seek qualified tax and super advice from an appropriately licensed adviser.

Can my SMSF pay me a temporary incapacity benefit if I am unable to work?

Another way of legally accessing super early via an SMSF that your fund may pay you a temporary incapacity benefit if you have ceased work as a result of physical and mental ill-health.

A ‘temporary incapacity’ benefit has a number of very stringent conditions.

Subject to the trust deed of the SMSF, a member may access benefits where the trustee is satisfied that temporary incapacity exists, i.e. the member has temporarily ceased work as a result of physical or mental ill-health which does not constitute permanent incapacity. It is not necessary for the member’s employment to fully cease.

Benefits may be paid where a member makes a partial return to gainful employment whilst incapacitated, provided that the member’s remuneration plus the temporary incapacity benefits do not exceed the member’s remuneration at the time the member became ill.

Payment of preserved benefits and restricted non-preserved benefits on temporary incapacity is subject to the following restrictions:

  • the benefit is paid as a non-commutable income stream;
  • the purpose of the payment is to continue (in whole or in part) the gain or reward which the member received before the temporary incapacity.

Generally a member on fully paid leave (e.g. sick leave) will not be eligible to receive temporary incapacity benefits;

  • the period of benefit payments must not exceed the period of incapacity from full employment at the level of weekly hours of the kind engaged in immediately before the member became ill; and
  • the benefits must not be paid from the member’s minimum benefits (refer Superannuation Circular No. I.C.1 Minimum Benefits Standards).

The non-commutable income stream:

  • cannot be commuted;
  • has no residual capital value;
  • pays benefits at least monthly; and
  • makes payments which may increase from month to month in accordance with the definition in r. 6.01(2) of the SIS Regulations.

SIS does not limit the term of the payment. However, where payments are made beyond two years there are taxation implications in relation to the deductibility of insurance premiums. For further information contact the ATO or refer to Taxation Determination 98/27.

Practical implications for SMSFs if paying a temporary incapacity benefit

Please note that this type of benefit payment is restricted to benefits other than member-financed and mandated employer financed benefits. This typically means that a temporary incapacity benefit can only be paid from the following sources:

  • employer contributions in excess of the superannuation guarantee level such as salary sacrifice contributions (currently FY2020 at 9.5% of ordinary time earnings). Member and superannuation guarantee contributions plus earnings are minimum benefits that cannot be used towards funding a temporary incapacity benefit;
  • insurance proceeds received by the fund in respect of the member such as income protection/continuation insurance proceeds; and/or
  • reserves maintained by the fund such as investment or general reserves.

The ATOs stance on reserves is that they shouldn’t exist in an SMSF, with the exception of reserves connected to a legacy pension or as part of a contributions reserving strategy (not really a reserve).  More information here: SMSFRB 2018/1 – The use of reserves by self-managed superannuation funds.

For an SMSF the member will need to put in writing a request to the trustee to commence this type of benefit payment.

The following information will be required to support the request by the member:

  • Evidence of the event causing temporary incapacity (letters / reports prepared by a doctor – similar to what would be provider to an insurer as part of a claims process).
  • Payslips to evidence the pre-incapacity income
  • Frequency of benefits required

In addition the SMSF will need to register for PAYG Withholding and withhold tax from the benefit payments. The income received by the member is other taxable income and will required to be reported in their individual tax return.

Payment of a temporary incapacity benefit from an SMSF is a complex area an appropriate superannuation and taxation advice needs to be obtained before withdrawing any monies from your SMSF.

Other strategies to legally access super benefits early from an SMSF

Some other strategies that may be available to members of SMSFs in legally accessing super early via an SMSF include:

  • Severe Financial Hardship:
    • Requires the member to be in receipt of Centrelink benefits for at least 26 weeks and the amount that can be accessed is limited to $10,000 in a 12-month period.
  • Compassionate Grounds:
    • Potentially for medical treatments for an SMSF member or a dependent where the treatment is not readily available via the public health system.
    • Can also be used to preventing foreclosure or repossession by a bank where mortgage payments have not been made but is limited to a maximum amount of 3 months of repayments or 12 months of interest on the loan in any 12-month period. Banks already provide hardship provisions for individuals and businesses who are struggling to make repayments, but the strategy could buy a business owner more time to get through a period of disruption.
  • SMSF Purchase of Assets from Members:
    • Acquisition of assets from members of an SMSF are generally prohibited, however there are three exceptions: business real property (commercial property), securities listed on a recognised stock exchange, units in a widely held unit trust (managed fund). The SMSF can purchase these types of assets with cash at market value. Loan may also be able to be used.
    • Alternatively if the members hold these assets personally they can sell them on the market and utilise the cash received as they see fit, including to support their business in a downturn.

Need further information?

Transactions between an SMSF and its members are a high-risk area, as is accessing superannuation benefits pre-retirement.  Obtaining the right advice is essential. We encourage you to contact us if you believe one or more of these strategies might assist you at this time of business and economic uncertainty.

You may have searched some of the following phrases to find this article:

  • SMSF loan to business
  • Can my SMSF loan money to a business?
  • SMSF temporary incapacity
  • SMSF temporary borrowing
  • SMSF coronavirus (COVID-19)
  • SMSF access age
  • Accessing SMSF early
  • Accessing SMSF funds
  • Access super for debts
  • SMSF early access to benefits
  • SMSF early access to super
  • Legally accessing super early via an SMSF

Share this post

Hello! From Intello

Get the latest from us as it happens.

connect with us

Cookies Notification

Intello use cookies on this website to offer a faster, more personalised browsing experience + analysis of our website traffic. By clicking 'x' or by using this website, you consent to our use of cookies (unless you have disabled them). More detail is available via our Privacy Policy.