SMSF Key Compliance Areas and Breaches
Self-managed superannuation funds (SMSFs) are in huge demand and their use is growing.
This is largely because they provide individuals with greater autonomy over how their retirement savings are managed and invested.
Unlike retail or industry super funds, an SMSF enables members to tailor investment strategies to their personal goals, this means you can buy an investment property, shares or gold etc. yourself for the fund.
However, this control comes with a high level of legal responsibility and understanding SMSF Compliance means understanding the Common Breaches and Their Consequences.
The ATO’s greatest concern is people accessing Super money in their SMSF, this is illegal!
Unless you meet a condition of release you cannot access money in super, you can’t just spend the money in your retail super accounts and the same applies to money in your SMSF.
Because of the easy access to the bank account in a SMSF people seem to forget this and end up breaching the many laws that prohibit accessing super money.
Section 65 – Financial Assistance to Members or Relatives
Section 65 of the SIS Act strictly prohibits SMSFs from lending money or providing any form of financial assistance to members or their relatives. This applies to both direct and indirect transactions.
Examples of Breaches:
Using SMSF funds to pay a personal mortgage
Covering private bills or other non-retirement-related expenses
Informal loans to family members
Even if the funds are later repaid, these actions are still breaches and are treated seriously by the Australian Taxation Office (ATO).
Key Takeaway: Any use of SMSF funds for personal or family financial support—regardless of the intention to repay—is a violation of the law.
Section 62 – The Sole Purpose Test
The Sole Purpose Test, under Section 62 of the SIS Act, mandates that an SMSF must be maintained exclusively for:
Providing retirement benefits to members, or
Death benefits to their dependants.
Examples of Misuse:
Using SMSF assets to pay for holidays, personal property, or short-term financial relief
Making early withdrawals not covered by a condition of release
Such activities breach the Sole Purpose Test because they serve current personal interests rather than future retirement benefits.
Key Takeaway: All SMSF assets must be used solely for retirement-related purposes. Personal use or benefit—no matter how small—constitutes a breach.
Penalties and Regulatory Actions
The ATO has the power to issue penalties and take enforcement action in cases of serious or repeated breaches. These include:
Disqualification of Trustees (Section 126A)
If a trustee fails to meet their obligations or is deemed not “fit and proper,” the ATO can disqualify them from acting as a trustee in any SMSF. This disqualification can have long-term consequences for individuals working in finance or professional services.
Professional Responsibilities and Ethical Obligations
Under Section 260 of the APES 110 Code of Ethics for Professional Accountants, professionals such as accountants must act when they identify non-compliance. This includes:
Advising trustees to reverse unlawful transactions
Reporting breaches to SMSF auditors
Updating financial records to reflect lawful fund activity
Documenting all findings and actions taken
Failure to address known breaches can result in ethical violations and disciplinary action from professional bodies.
BEST PRACTICES TO MAINTAIN SMSF COMPLIANCE
Respect the Purpose of SMSFs: They are not personal accounts. All activity must align with retirement or death benefit objectives.
Understand the Law: Ignorance is not a defence. Trustees must stay informed about the SIS Act and relevant regulations.
Avoid Lending or Financial Support: Any financial assistance to members or relatives is illegal.
Act Quickly on Breaches: Prompt action and transparency can mitigate penalties.
Heed Auditor Feedback: Auditors play a key role in ensuring compliance. Their concerns should never be ignored.
Ensure Accurate Reporting: Timely and correct lodgement of financial reports and audits is essential.
Protect Your Reputation: Legal breaches can lead to disqualification and damage your professional standing.
Seek Professional Advice: Consult qualified professionals before making decisions you’re unsure about.
Keep the Trust Deed Updated: A current and compliant trust deed is critical to ensure the legality of fund activities.
Plan with the Future in Mind: Maintain a long-term, retirement-focused perspective for fund management.
Contact us to find out more…..
General Advice warning: the information in this article is general in nature, it is not advice specific to your needs. If you want to act upon the information in this article then you should seek advice from a qualified professional. VJC and VJC WM accepts no liability to any party for acting from this information unless they have sought advice in a formal engagement for this purpose
