Q&A: Can we use the money from our SMSF for personal use upon reaching pension age?

Q: After reaching pension age, are we allowed to use the money from our SMSF for our personal use? Can we use the money from our SMSF to start a business from home?

A: What we need to look at here are the specific rules that need to be complied with, not only during what we call the accumulation stage, while our money is growing, but also the rules that apply to SMSFs pre-retirement and in retirement.

There are no special rules around using the assets personally, whether you’re in accumulation or pension, and there’s certainly no rules around using money to start a business in your SMSF, whether you’re in retirement or not in retirement. The rules are consistent across the board.

The rules in particular that I want to talk about today, there’s two. There are the sole purpose tests and there’s the in-house assets test. And again, just to reiterate, these rules apply both in accumulation in growth phase, but also in draw down in pension phase. These rules apply at all times.

The sole purpose test sets out that all the assets in the fund are held solely for the purpose of providing retirement benefits. The whole reasoning behind super is the sole purpose test, that all assets are held solely for the benefit of providing retirement income to the members or their beneficiaries if something happens to the member.

Then, we’ve got the in-house assets test, which talks about the restrictions, particularly on SMSFs. They apply to all funds, but particularly the SMSFs around certain restrictions. Restrictions on lending money to the members of the fund or their relatives or related parties. The question around whether I can use the money to start a business where I can lend money to the fund to start a business, the in-house assets test needs to be reviewed here, because you can’t lend money to the members of the fund, their relatives, or to the related parties of the fund.

Also, the in-house assets test restricts us from leasing any of the fund assets that it may own to the members of the fund or their relatives, or their related parties. So if the fund owns an asset, it can’t be used for personal benefit.

The last one is probably the most relevant, around investing. So, the in-house assets test restricts an SMSF from investing in businesses or in entities that are owned or controlled by the members of the fund, by the relatives or by the related parties. These rules that we’ve just looked at always apply to all assets in the fund, even when the members have retired.

So, the question around can I use the assets in retirement? Can I borrow money to start a business? Can I do these things? If you want to do those things with your super for personal use or start a business, you probably or you may need to actually withdraw or remove the benefits from your SMSF and hold those assets, those investments or whatever it might be personally or in another non-super entity like a company or trust. You need to go and work out what’s best for you.

So, you can’t really use the assets of the fund as you would like. You would probably need to remove those from the super environment and then use them externally to super through another non-super entity, which of course, could mean the removal of tax benefits depending on what you do. So don’t use the assets that way of the fund. You may need to pull those out.

There are two articles I’ve referenced here on the slide for you. One is particular to the sole purpose test and how it works. And the other one is around the other laws which SMSFs need to meet.