Basic Rules for Trustees of an SMSF

Basic Rules for SMSF Trustees

Is a SMSF right for you?
Here are some basic guidelines for Trustees of an SMSF:


Build your SMSF Support Team

You'll need an Accountant, an SMSF Auditor, a Financial Advisor, and possibly a Lawyer who can work together to support the Trustee of the SMSF.


Get your Personal Estate Planning in Place Now

Get your own financial house in order and establish your Will, Power of Attorney and Power of Enduring Guardianship documents.


Get to Know The Rules for Managing your SMSF

The ATO has useful information and instructional videos to assist Trustees of SMSFs you can see here.


Create your Investment Plan and Work on a Strategy

The ATO states, ‘SMSFs are required to prepare and implement an investment strategy to help meet their investment and retirement goals. The investment strategy is not designed to be a 'set and forget’ document but rather a strategy you continuously review to ensure you are meeting your retirement plans.’


Maintain the Liquidity Needs of your SMSF

The Trustee of an SMSF is required to regularly consider the liquidity needs of the fund and its members. As the purpose of your SMSF is to build up a pool of assets to sustain your lifestyle throughout your retirement, if the fund’s assets are primarily held in property, being a bulky assets, this may not give you the required liquidity.


Document your Decisions, Meetings & Strategy Reviews

Your SMSF Auditor will need to ‘evidence you are running a complying SMSF’ and this will require documentary evidence to support your good decisions.


Plan Ahead for the future transfer from the Accumulation Phase to the Pension Phase

Understand how ‘lumpy’ (relatively illiquid) assets may affect the funds ability to make the annual minimum drawdown each year in pension phase, to maintain the funds tax-exempt status, so a strategy to manage this phase will be needed ahead of time.


Stay Connected to Good Advice

The SMSF legislative environment continues to change and develop so Trustees of an SMSF need a way to maintain their knowledge of key changes and requirements. This is where building a long-term relationship with your advice team contributes significant value to your SMSF strategy.

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Annual Audits of SMSF's

SMSFs are personal superannuation funds where the members are also the trustees. Annual audits are a core part of successfully running an SMSF, so it pays to know what is expected.

Anyone who runs a self-managed superannuation fund (SMSF) must ensure that a registered SMSF auditor audits the fund annually.

  • The superannuation legislation requires the Trustee of an SMSF to appoint an auditor to report on the fund’s operations for the financial year.
  • The audit provides an independent opinion on whether the fund’s records are kept correctly and maintained solely for members’ benefit. Ultimately the audit is to ensure compliance with the law and safeguard the retirement income of the fund's members
  • SMSF trustees (or their tax agents) can’t submit their annual tax returns until the SMSF audit has been completed. If these details are not completed, including auditor details, the ATO will reject the lodgement of the fund’s return for the year. This can have a wide-reaching impact with significant financial and legal consequences.

It sounds pretty straightforward — but as with many things SMSF, it can be more complicated than it looks.

The serious business of running an SMSF

Auditors are given detailed instructions on planning, conducting, and reporting an SMSF audit and encouraged by the ATO, to quickly identify and rectify actual (and potential) breaches of the legislation and “self-report” rather than wait for the ATO to investigate.

  • Auditors are also given a list of ‘reportable breaches’ that must be reported to the ATO.

Below is a list of ‘reportable breaches’ of the governing legislation; the SIS Regulations and SIS Sections.

Reportable SMSF Breaches for the SIS Regs

List of SIS Regulations to be audited & reported if contravened
RegRegulation titleRegRegulation title
R4.09* Investment strategy R7.04 Acceptance of contributions
R4.09A  Separation of assets R8.02B Valuation of assets
R5.08 Minimum benefits R13.14 Charges over assets of the fund
R6.17 Restriction on payment of benefits R13.18AA Investment in collectibles and personal use assets

Reportable SMSF Breaches for the SIS Sections

Complying With the SIS Act

Although SMSFs must comply with all of the SIS Act and Regulations, the ATO lists specific sections that must be audited for compliance. It also has a set of tests to decide whether there has been a contravention that the auditor should report.

Sections from the SIS Act where breaches are generally reportable

Itemised sections from the SIS Act where breaches are generally reportable
SectionSection titleSectionSection title
S17A* SMSF definition S83 In-house assets – prohibition on further acquisition
S35C(2)* Trustee to provide documents S84 In-house asset rules must be complied with
  to the auditor    
S52(2)(d) or R4.09A Separation of assets S85 In-house assets – prohibition of avoidance schemes
S62* Sole purpose test S103* Minutes and records
S65 Lending or providing financial S104A* Trustee declaration
  assistance to members or their relatives    
S66 Acquisition of assets from related parties S109 Investments to be maintained on an arm’s length basis
S67 Borrowing by the fund S126K* Disqualified persons not to be trustees
S82 In-house assets – exceeding    
  in-house assets ratio    
*Contraventions with no monetary value      

Getting used to working with your Professional Advisors

Running a successful SMSF requires trustees to become familiar with working with their professional advisors. Mistakes and errors are common. To err his human. When they are uncovered be ready to engage the ‘team' — Financial Advisors, Lawyers, Accountants, and Auditors.

Each professional works within their own area of expertise to serve the Trustee.

  • Only a financial adviser can give financial planning advice. e.g., investment strategies, liquidity insurance, diversification, and reversionary pensions.
  • Only lawyers can give legal advice.
  • Only accountants can deal with certain matters. e.g., the accountant preparing the SMSF tax returns is not an auditor. The accountant does not test the information provided.
  • Only SMSF auditors can audit.

Trustees of an SMSF need to regularly work with their team of professional advisors to keep their SMSF working in an efficient and straightforward manner, to build wealth for a comfortable retirement. Its management can last for decades and involve making decisions that can make or break a financially comfortable retirement income.

How we can help

Running an SMSF can be a way to take personal control over your retirement planning, get exposure to different investment markets, and be an important consideration for many Australians actively planning for their retirement.

Contact us for a confidential chat about your needs.

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