Superannuation can feel like a maze of rules and regulations, but if you have a Self-Managed Super Fund (SMSF), it’s crucial to get them right. The Superannuation Industry (Supervision) Act 1993 (or SIS Act) is the main law that governs all super funds in Australia, including SMSFs.
Think of the SIS Act as the rulebook that ensures super funds are run properly, keeping your retirement savings safe and protected.
Managing an SMSF means following some strict rules. Here are the most important ones:
1. Sole Purpose Test – Super Is for Retirement Only
An SMSF must only exist to provide retirement benefits to its members or their beneficiaries if they pass away.
Not allowed:
- Using your SMSF to buy a holiday home for yourself or your family.
- Investing in assets you personally use, such as art for your house.
- Withdrawing money before you meet the conditions, such as retirement or turning 65.
Allowed:
- Investing in shares, property, or other assets that fit your fund’s investment strategy, as long as they are for retirement purposes.
Example:
John runs an SMSF and wants to buy a beach house with his super. He plans to rent it out most of the year but stay there for a few weeks.
Not allowed – This breaches the Sole Purpose Test because John is getting a personal benefit from the investment.
2. Trustee Responsibilities – Running the Fund Properly
Every SMSF has trustees, the people who manage it, and they have serious legal duties.
Trustees must:
- Act in the best interests of the fund’s members.
- Follow super laws and the fund’s trust deed.
- Keep financial records and submit reports to the ATO.
Breaking the rules can result in fines or disqualification from running an SMSF.
3. Investment Rules – No Dodgy Deals
SMSFs must have an investment strategy and follow strict investment rules.
Not allowed:
- Loaning money from your SMSF to yourself, your business, or family members.
- Buying property and renting it to yourself at a discount.
- Investing too much in assets linked to related parties.
Allowed:
- Buying an investment property if it’s purely for investment, with no personal use.
- Investing in shares, managed funds, or other approved assets.
Example:
Tom’s SMSF loans $50,000 to his business to help with cash flow.
Not allowed – SMSFs cannot lend money to related parties.
4. Contribution & Benefit Payment Rules – When You Can Add or Take Money
The SIS Act controls:
- Contributions (money going in) – Must follow contribution limits.
- Withdrawals (money coming out) – You can’t access your super early unless you meet a condition of release, such as retirement, financial hardship, or reaching preservation age.
Example:
Sarah, 55, is struggling financially and wants to withdraw money from her SMSF.
Not allowed – She hasn’t yet met a condition of release.
5. Borrowing Rules – Super Funds Usually Can’t Borrow Money
SMSFs generally can’t borrow money, except in limited situations, like a Limited Recourse Borrowing Arrangement (LRBA), which allows SMSFs to borrow for certain investments.
6. Reporting & Compliance – Keeping the ATO Happy
SMSFs must lodge an annual return with the ATO and have an independent audit every year.
If an SMSF doesn’t meet its compliance obligations, it could be fined or made non-compliant, meaning big tax penalties.
7. Related-Party Transactions – Avoid Conflicts of Interest
Not allowed:
- Buying a residential property from a family member and holding it in your SMSF.
- Lending money from the SMSF to yourself or a related party.
Allowed:
- Buying business property from a related party if it is used for business purposes.
8. Penalties for Breaking the Rules
If an SMSF fails to follow SIS Act rules, the ATO can:
SMSFs give you control over your super, but they come with strict rules. If you don’t follow them, the penalties can be severe. Before making any big decisions, make sure you understand the rules or get professional advice.
Need help navigating SMSF compliance? Get in touch, and let’s make sure your fund stays on track.