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Loans to members represent the most commonly reported violation of superannuation laws in auditor contravention reports (ACR) submitted by self-managed super fund (SMSF) auditors, accounting for 16% of breaches reported for the audit years spanning from 2019 to 2022. It is crucial to note that SMSF trustees are prohibited from lending money or providing financial assistance to themselves or their relatives, as such actions may result in penalties up to $18,780 and disqualification as a trustee. Trustees are also restricted from loaning money to related parties, exceeding 5% of the fund's total assets, constituting a prohibited in-house asset investment and a regulatory breach. 


If the in-house assets of an SMSF surpass 5% of the total asset value at the end of the financial year, trustees must formulate and execute a plan to reduce these assets below the specified threshold by the following financial year's end. Failure to adhere to this requirement constitutes a contravention. Understanding and compliance with these rules are imperative to avoid engaging in prohibited transactions through your SMSF. 


In the event of a prohibited loan, rectification should be prioritized by promptly repaying the loan, and SMSF professionals should be consulted for assistance. If rectification is not feasible, the SMSF early engagement and voluntary disclosure service can be used to communicate with regulatory authorities before audits or compliance actions commence. The disclosure made during this process is considered in determining subsequent regulatory actions. 


For further insight into the consequences of non-compliance and the potential actions taken by regulatory authorities, refer to the information on how we deal with non-compliance. Additionally, a comprehensive overview of contraventions related to investment restrictions can be found in the section on restrictions on investments

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