SMSF Rules & Limits Reference

Individual trustees: Every member must be a trustee, and every trustee must be a member. A fund with individual trustees requires at least 2 trustees.

Corporate trustee: A company acts as trustee. Every member must be a director of the company, and every director must be a member. Only 1 corporate trustee is required, regardless of how many members the fund has.

Single-member funds: Can have 1 individual trustee who is not a member (typically a relative or another person), or a corporate trustee with 1 or 2 directors.

Maximum members: 6.

A person is disqualified from acting as an SMSF trustee (or director of a corporate trustee) if they:

• Have been convicted of an offence involving dishonesty
• Are subject to a civil penalty order under the SIS Act
• Are insolvent (bankrupt or under a personal insolvency arrangement)
• Were a trustee of a fund that received a non-complying notice in the past 10 years
• Have been disqualified by the ATO

• New trustees must sign the ATO trustee declaration (NAT 71089) within 21 days of becoming a trustee or director
• Signed declarations must be kept for at least 10 years
• The declaration confirms the trustee understands their obligations under superannuation law

The fund must be maintained for the sole purpose of providing retirement benefits to members, or death benefits to their dependants. This is the foundational rule all SMSF investments must satisfy.

Any investment that provides a current-day benefit - financial or otherwise - to a member or related party risks breaching this test. Examples include: using fund property for personal enjoyment, purchasing artwork or collectibles stored at a member's home, and loans structured to benefit a related party.

No more than 5% of the fund's total assets can be in-house assets at the end of a financial year.

In-house assets include: loans to related parties, investments in related trusts, and assets leased to a related party.

All investments must be made and maintained on arm's length terms. The price paid for an asset, and the return earned from it, must reflect what two unrelated parties would agree to.

Common risks: acquiring assets below market value, providing loans at below-market rates, and charging below-market rent on a leased asset.

Trustees must document a written investment strategy that covers: risk and return objectives, diversification across asset classes, liquidity (the fund's ability to meet obligations as they fall due), and insurance needs of members.

The strategy must be reviewed regularly and updated to reflect the fund's actual investment mix. The ATO has flagged that generic, template strategies are inadequate and may result in a compliance finding during audit.

Trustees must consider the insurance needs of members when preparing or reviewing the investment strategy. This does not mean insurance is compulsory - but the consideration must be documented.

SMSFs can hold the following types of insurance for members:

• Life insurance (death cover) - premiums are generally deductible to the fund
• Total and permanent disability (TPD) - the policy definition must align with a superannuation condition of release
• Income protection - premiums are generally deductible to the fund

Terminal illness and trauma cover can present complications inside an SMSF due to condition of release rules. Consider seeking advice before including these in the fund.

Before-tax contributions. Includes employer contributions (including SG), salary sacrifice, and personal contributions for which a tax deduction is claimed.

Concessional contributions are taxed at 15% inside the fund (or 30% for higher-income earners subject to Division 293 tax). They count toward the annual concessional cap regardless of source.

If your total super balance was under $500,000 at the prior 30 June, you may be able to carry forward unused concessional cap from FY2018-19 onwards. See the Contribution Caps Hub for current cap amounts and carry-forward rules.

After-tax personal contributions. No tax deduction is claimed and no tax applies inside the fund on contribution.

Non-concessional contributions are not available if your total super balance reached $2M or more at the prior 30 June. Members under 75 may be able to trigger a bring-forward arrangement, contributing up to 3 years' worth of the cap in a single year - subject to TSB thresholds. Members aged 67 to 74 must also meet the work test to make personal contributions.

See the Contribution Caps Hub for cap amounts, bring-forward tiers, work test rules, and downsizer contribution eligibility.

SMSFs can invest in residential property, subject to strict restrictions:

• Cannot be acquired from a related party (with very limited exceptions)
• Cannot be occupied by a member or related party
• Cannot be rented to a member or related party
• Must be leased to unrelated tenants at market rates

Business real property is property used wholly and exclusively in a business.

An SMSF can: acquire business real property from a related party (including a member), and lease it back to a related party (including the member's own business). Both the acquisition and the rental must be at arm's length and at market rates.

This is a common and legitimate strategy for small business owners wanting their SMSF to own their business premises. Business real property leased to a related party on arm's length terms is not classified as an in-house asset.

An LRBA allows an SMSF to borrow money to acquire a single asset (or a collection of identical assets with the same market value). The borrowed funds are used to purchase the asset, which is held in a separate holding trust (bare trust) until the loan is repaid. The lender's recourse is limited to that asset - it cannot claim other fund assets in a default.

Once the loan is fully repaid, the asset transfers to the SMSF. LRBAs apply to both property and listed securities.

TSB impact: LRBA balances may be included in a member's total super balance, which can affect contribution eligibility. Consider seeking advice if your fund holds or is considering an LRBA and your balance is approaching relevant thresholds.

Superannuation benefits are preserved until a member meets a condition of release. The most common conditions for SMSF trustees are:

• Retirement: Ceasing employment after reaching preservation age (age 60 for those born on or after 1 July 1964) with no intention of returning to work, or ceasing any employment arrangement after turning 60
• Turning 65: A full condition of release regardless of employment status
• Transition to retirement (TTR): Reaching preservation age (restricted access - no lump sums, maximum 10% drawdown per year)
• Terminal medical condition: Two medical certificates confirming a terminal illness likely to result in death within 24 months
• Permanent incapacity: Unable to work in any occupation for which the member is qualified
• Death: Benefits paid to dependants or the estate
• Severe financial hardship or compassionate grounds: Subject to ATO approval, limited amounts only

See the SMSF Glossary for definitions of preservation age and related terms.

The most common SMSF pension. A member can commence an account-based pension once they meet a full condition of release - most commonly, retirement or reaching age 65.

• Earnings on assets supporting the pension are tax-free (via ECPI - see below)
• A minimum amount must be withdrawn each year (based on age)
• No maximum drawdown limit other than the account balance
• Pension payments are generally tax-free for members aged 60 and over

ECPI is the mechanism that makes investment earnings from pension-phase assets tax-free. It is claimed in the fund's annual return. There are two methods:

• Segregated method: Specific assets are identified as supporting pension liabilities. All income and gains from those assets are 100% exempt. Applies where all members are in retirement phase and the fund has a single pool of assets.
• Proportional (unsegregated) method: Used where the fund has both accumulation and pension-phase members, or where a member has a defined benefit interest. An actuary calculates the exempt proportion each year.

Funds with members who have balances in both accumulation and pension phase generally cannot use the segregated method. The method used affects how the fund prepares its financial statements and tax return. Consider seeking advice from your SMSF auditor or accountant on which method applies.

Calculated as a percentage of the account balance at 1 July each year, or at commencement (pro-rated from the start date if starting mid-year).

Available from preservation age (age 60 for anyone born on or after 1 July 1964). Lets members draw down super while still working.

• Minimum: same age-based rates as account-based pensions
• Maximum: 10% of account balance per year
• Earnings in TTR phase are taxed at 15% (not tax-free)
• Lump sum withdrawals are not permitted

Once a member meets a full condition of release (such as retiring after reaching preservation age), the TTR pension can be converted to a retirement phase account-based pension and the 15% earnings tax no longer applies.

The transfer balance cap (TBC) limits how much super can be moved into the tax-free retirement (pension) phase.

• General TBC for FY2025-26: $2M
• Each individual has a personal TBC based on their history of retirement phase transfers
• Exceeding the cap results in an excess transfer balance, which attracts tax on notional earnings above the cap
• The general TBC is indexed to CPI in $100,000 increments

When a member dies, the fund must pay out their benefit. The benefit can be paid as a lump sum or, in some cases, as a continuing income stream (death benefit pension). The rules differ depending on the recipient and the fund's trust deed.

Binding death benefit nominations (BDBN): A valid BDBN directs the trustee to pay the benefit to the nominated person(s). Without a valid BDBN, the trustee has discretion to determine who receives the benefit. BDBNs must generally be renewed every 3 years unless the trust deed provides for a non-lapsing nomination.

Eligible recipients: Super death benefits can only be paid to dependants (spouse, children, or someone in an interdependency relationship) or to the estate. Adult financially independent children generally cannot receive a super death benefit as a pension - only as a lump sum.

Tax on death benefits: The tax treatment depends on the recipient's relationship to the member, the tax components of the benefit, and the recipient's age. Lump sums to dependants (as defined for tax purposes, including spouses) are generally tax-free.

Every SMSF must be audited annually. Key requirements:

• Auditor must be a registered SMSF auditor (registered with ASIC)
• Auditor must be independent of the fund and its trustees
• The audit covers both the financial statements and compliance with superannuation law
• The audit must be completed before the fund's annual return is lodged

Provide all supporting documents to the auditor promptly. Delays in producing records are a common cause of late return lodgement - which itself triggers penalties.

The SMSF annual return is lodged with the ATO each year. It covers income tax, regulatory compliance, and member reporting.

Lodgement deadlines:

• Self-lodging funds: 31 October of the following year
• Via a registered tax agent: Extended deadline, typically February or May depending on the agent's lodgement program

Trustees must report certain events that affect a member's transfer balance account. Reportable events include: commencing a retirement phase pension, commuting (stopping) a pension in full or in part, and receiving a death benefit income stream.

Check the SMSF Compliance Calendar for exact TBAR due dates each quarter.

The ATO has a broad range of enforcement tools:

• Non-complying declaration: A non-complying fund pays tax at 45% on its taxable income - effectively penalising the entire fund balance
• Trustee disqualification: The ATO can disqualify an individual from acting as an SMSF trustee or director of a corporate trustee
• Rectification directions: The ATO can direct trustees to take specific steps to fix a breach within a set timeframe
• Education directions: The ATO can require trustees to complete an approved course
• Administrative penalties: Applied per breach (see below)
• Enforceable undertakings: The ATO may accept a formal undertaking from trustees in lieu of other action

Administrative penalties apply per breach. For individual trustee structures, penalties apply to each trustee separately. For corporate trustees, the penalty applies to the company - not to each director individually.

Penalty amounts are expressed in penalty units. The current value is $330 per unit (indexed from 7 November 2024).

The ATO regularly publishes data on the most common compliance failures in SMSFs:

• Lending money to a member or related party (prohibited under s65)
• Acquiring residential property from a related party
• Allowing a member or related party to use fund property
• Exceeding the 5% in-house asset limit
• Missing minimum pension drawdowns for the year
• Failing to maintain or review the written investment strategy
• Not engaging a registered SMSF auditor or failing to complete the audit before lodgement
• Late lodgement of the annual return

When a breach occurs, early and voluntary engagement with the ATO is generally advisable. The ATO has a published compliance approach and frequently works with trustees to rectify issues rather than applying the most severe penalties - particularly for first-time or inadvertent contraventions.

Trustees who self-identify a breach, take steps to fix it promptly, and contact the ATO proactively are generally treated more favourably than those where the breach surfaces during an audit or review.

Consider seeking advice from a licensed SMSF specialist or SMSF auditor if your fund has experienced a potential compliance issue.