Notice to all SMSF Lenders: The importance of complying with the SIS Act

Lenders should be acutely aware of the severe implications associated with breaches of the Superannuation Industry (Supervision) Act 1993 (SIS Act) and its regulations by Self-Managed Superannuation Funds (SMSFs). Such breaches can result in substantial civil and criminal penalties, including hefty fines for serious violations, as specified in sections 193 and 196 of the SIS Act. These contraventions not only threaten the SMSF’s status as a complying superannuation fund but also may lead to severe tax repercussions.

While the responsibility for compliance with the SIS Act lies with the SMSF and its advisers, lenders are not immune to the fallout. Non-compliance by an SMSF can tarnish a lender’s reputation, potentially impacting future business and client trust. Although the lender’s loan security remains technically valid and enforceable, the reputational damage could have long-lasting effects on the lender’s standing in the financial industry.

Moreover, under section 194 of the SIS Act, any person involved in a contravention (including lenders) is deemed to have breached the provision. This involvement can include actions such as aiding, abetting, counselling, procuring, or inducing the contravention, or being knowingly concerned in it, directly or indirectly. Lenders must be vigilant to avoid any association with such contraventions, as the legal and reputational risks are significant.

Ensuring SIS Act Compliance: How we can help you

Our lawyers have the technical expertise and practical experience to provide banks and non-bank lenders with expert guidance and advice to ensure that their loan documents, practices, and each transaction aligns with the stringent requirements of the SIS Act.

Our comprehensive Fixed-Fee SMSF Lending Transaction Service includes the following:

• Document the Limited Recourse Borrowing Arrangement (LRBA) using the lender’s documents or if required, our SIS Act compliant loan documents
• If required, issue loan documents via a secure online customer portal for review and execution. Alternatively, issue hard copies of loan documents where required. Review signed loan documents to ensure valid execution
• Undertake a review of the SMSF Trust Deed to ensure it provides the SMSF trustee with the required powers to enter into an LRBA with the lender (this extends beyond just the power to borrow)
• Undertake a review of the Bare/Property Trust Deed to ensure it correctly identifies the underlying property and validly documents a bare trust relationship between the SMSF and Bare Trustee (as is required under the SIS Act)
• Undertake a review of the Contract for Sale to ensure the correct purchaser is noted (being the Bare Trustee) and that the property is a single acquirable asset. This includes a review of any inclusions noted in the contract to ensure the property remains a single acquirable asset (as is required under the SIS Act)
• Provide the SMSF Borrower with a letter documenting our review and listing any outstanding items that must be attended to prior to settlement. This involves liaising with the SMSF and their advisers to address any issues we have identified and then obtaining all outstanding items prior to settlement
• Provide the lender with a letter documenting our review, providing our recommendations and listing any outstanding items required from the SMSF borrower prior to settlement
• Prior to settlement, provide the lender with a written legal certification (in the form a Solicitor Certification) confirming the particular transaction is compliant with the SIS Act
• Attending to settlement, ensuring the PEXA workspace correctly notes the LRBA structure (i.e., to ensure that the bare trustee is reflected as the transferee and to ensure that all loan funds are applied to the purchase of the single acquirable asset)

Why choose us

Our team of SMSF lawyers have established SMSF lending programs for many of Australia’s leading lenders, acted for numerous banks and lenders on SMSF transactions and are regularly engaged by major lenders to provide SMSF-specific compliance advice for specific transactions.

Our Fixed-Fee SMSF Lending Transaction Service provides you with transparent and predictable costs, allowing you to focus on what matters most — your business.

Get in touch with us

If you would like any assistance with your SMSF transactional lending practices or to obtain a tailored fixed-fee proposal, please get in touch with our team of SMSF experts. Our lawyers have advised most of Australia’s leading SMSF lenders and so, are well-placed to advise you!