Updated: July 2026
Can an SMSF borrow money to pay superannuation benefits?
As a general rule, trustees of a self-managed superannuation fund (SMSF) are prohibited from borrowing money or maintaining an existing borrowing under section 67 of the Superannuation Industry (Supervision) Act 1993.
This prohibition is an important part of the SMSF regulatory framework. It is designed to protect members’ retirement savings from the risks associated with debt and to prevent lenders from having inappropriate claims over fund assets.
However, the law does allow limited exceptions.
Temporary borrowing to pay a member benefit
One exception allows an SMSF trustee to temporarily borrow money to make a payment to a beneficiary, including a member benefit payment, where all of the following conditions are satisfied:
- the payment is required by law or by the governing rules of the fund;
- the trustee would not be able to make the payment without the borrowing;
- the borrowing does not exceed 90 days; and
- the total amount borrowed does not exceed 10% of the value of the fund’s assets.
This means an SMSF may be able to temporarily borrow to meet a benefit payment obligation, such as a pension payment, but only where the borrowing is genuinely short-term and falls within the strict limits set out in the legislation.
The Australian Taxation Office’s current guidance confirms that an SMSF can borrow for a maximum of 90 days to meet benefit payments due to members, provided the amount borrowed does not exceed 10% of the SMSF’s total assets.
What is a borrowing?
The term “borrowing” is not defined in detail in the SIS Act. SMSF Ruling SMSFR 2009/2 explains that a borrowing generally involves:
- a temporary transfer of money from a lender to a borrower; and
- an obligation or intention to repay that money.
This is important. A temporary cashflow arrangement, unpaid expense, related party advance, overdraft-style facility or informal payment arrangement may still need to be considered carefully to determine whether it is a borrowing for SMSF purposes.
Practical compliance considerations
Even where the temporary borrowing exception may apply, trustees should not treat it as a routine cashflow solution.
Before entering into any borrowing arrangement, trustees should consider whether:
- the fund’s trust deed permits the arrangement;
- the benefit payment is actually required by law or under the fund’s governing rules;
- the borrowing is necessary because the fund could not otherwise make the payment;
- the borrowing can be fully repaid within 90 days;
- the amount borrowed remains within the 10% limit;
- no charge is given over fund assets, unless a specific exception applies;
- the arrangement is properly documented; and
- the fund’s investment strategy adequately considers liquidity and the ability to meet benefit payments.
The liquidity issue is particularly important. If a fund needs to borrow to meet pension or benefit payments, this may indicate that the trustees should review the fund’s investment strategy, cashflow planning and asset mix.
Auditor focus
From an audit perspective, a trustee relying on the temporary borrowing exception should be able to provide clear evidence that the conditions have been met. This may include loan documentation, trustee minutes, evidence of the benefit payment obligation, calculations supporting the 10% limit, repayment records and confirmation that the borrowing was repaid within 90 days.
Where the exception is not satisfied, the borrowing may result in a contravention of the SIS Act and may need to be reported by the SMSF auditor, depending on the circumstances and the ATO’s reporting criteria.
Key takeaway
An SMSF can only borrow money in very limited circumstances. Temporary borrowing to pay a member benefit may be permitted, but only where the strict section 67 conditions are satisfied.
Trustees should obtain appropriate professional advice before entering into any borrowing arrangement. Reliance Auditing Services provides SMSF audit services and does not provide financial, legal or taxation advice to trustees.