Ongoing compliance with superannuation legislation requires a self‑managed superannuation fund (SMSF) to satisfy a range of regulatory tests and administrative obligations. Several of the key requirements are outlined below.
Sole Purpose Test
All SMSF investments must be maintained for a single purpose: providing retirement benefits to members or death benefits where a member passes away before their superannuation entitlements have been fully paid.
Related Party Transactions
Transactions between the SMSF and its members, their relatives, or related entities are generally prohibited. A limited exception applies where the fund invests in business real property owned by a related party, such as commercial premises used by a member’s business. As this area is complex and subject to strict conditions, professional advice is strongly recommended.
In‑House Assets
An in‑house asset includes loans, investments, or leases involving a related party of the fund. SMSFs are restricted to holding no more than 5% of total fund assets in in-house assets, subject to certain exceptions, including specific business property investments.
Arm’s Length Transactions
All fund transactions must be conducted on an arm’s-length basis. Each investment must be made under normal commercial terms and at fair market value, ensuring no preferential treatment is provided to any member or related party.
Borrowings and Security
Borrowing within an SMSF is permitted only under strict conditions. In most cases, borrowing arrangements are limited to specific structures secured against individual assets, such as investment properties, with lenders having no recourse to the fund’s other assets. Professional advice should be obtained before entering into any borrowing arrangement.
Investment Strategy
Each SMSF trustee is required to prepare and maintain a documented investment strategy. All investment decisions must align with this strategy, which should be reviewed regularly to ensure it continues to meet the objectives and needs of the fund’s members.