Does Your Self Managed Superannuation Fund (SMSF) Comply?


IF YOU HAVE made a mistake with your SMSF, there is no point burying your head in the sand hoping it will go away!

There could be serious taxation consequences if you do have a non-complying SMSF.

The following series of articles looks at how you can manage SMSF problems … so that you can end up in great financial shape, focused and ready to invest appropriately over and over again.

The Basics of SMSF Non-Compliance Law

ATO Practice Statement Law Administration: PS LA 2006/19 Self Managed Superannuation Funds – Notice of Non-Compliance.

This statement determines when the ATO Commissioner will consider whether a notice of non-compliance should be given to a fund under subsection 40(1) of the Superannuation Industry (Supervision) Act 1993 where the trustee has contravened one or more of the regulatory provisions.

Regulatory issues such as:

  • Breaches of the in-house asset rules
  • Illegal early release of super
  • Refusal to lodge annual returns

Breaches of the In-House Asset Rules

There is a 5% limit placed on in-house assets. This means that if you have a total investment of $500,000 in your fund, you may have a maximum of $25,000 exposed to in-house assets.

For example a loan back to your business on commercial terms.

In summary, as a trustee of an SMSF you cannot lend to, or invest in, a related party or related trust of the fund, where the loan or the value of the assets is greater than 5% of the market value of the fund’s total assets.

For my clients, I generally recommend that you have zero percent in-house. This is to avoid any unwanted attention from the ATO.

Illegal Early Release of Super

There are some very limited circumstances, as to when you can access your restricted superannuation — before you reach your preservation age. These include:

  • Severe financial hardship — if you have received Commonwealth benefits for 26 continuous weeks, but are still unable to meet immediate living expenses (there is a cap/limit to this amount).
  • Incapacity — if you suffer permanent or temporary incapacity.
  • Compassionate grounds — to pay for medical treatment if you are seriously ill.
  • Terminal medical condition — if you have a terminal illness or injury.

It is illegal to touch your SMSF for any reason other than those above.

Refusal to Lodge Annual Returns

If you fail to lodge a return for a year of income, you will be hit was a non-conformance. Lodging returns is considered a basic requirement of the regulation your SMFS. Therefore, each violation is considered serious.

As the trustee, you are expected to be aware of this requirement.

The seriousness of the offence depends on the number of contraventions involved and the trustee’s willingness to adhere ATO’s requests.

BOTTOM LINE: There are others but these are the most common non-compliant SMSF issues. In the next instalment (Part 2), you will read about the taxation consequences of being non-compliant. If you think that you might not be complying, then make sure you read it!



  1. I have please you have shared this kind of situation as I can inform my parents about it.

Speak Your Mind