Highlights

  • A prominent superannuation lawyer says no provision of the SIS Act stops an SMSF from running a business.
  • Related-party limits, borrowing restrictions and a ban on charging fund assets combine to make an SMSF-run business impractical.
  • Income from non-arm's length dealings can face tax at 45%, against the usual 15% concessional rate for funds.
  • The Australian National Audit Office is auditing the ATO's regulation of SMSFs, and public contributions closed on 25 October.

The countdown is on to 5pm AEDT on Wednesday 28 October, when the ATO is due before Senate Estimates, and SMSF regulation may well be raised. Waiting in the wings is an audit of how the ATO polices the sector, with public contributions closed on 25 October. Into that charged climate stepped a prominent super lawyer with a blunt message. Nothing in the law prevents a self-managed super fund from running a business. He just would not do it, not even in the simplest case.

Legal, but hemmed in

Phil Broderick of Sladen Legal told a national superannuation conference that no provision of the Superannuation Industry (Supervision) Act 1993 (SIS Act) prohibits an SMSF from running a business.

The trouble lies in what surrounds that freedom. The related-party rules, the limits on borrowing and the inability to charge fund assets together make it impractical.

Asked about a small production business on farmland, he was blunt: "Even then I wouldn't do it."

The rules that get in the way

The sole purpose test requires a fund to exist for the core purpose of providing retirement benefits. A business that delivers present-day benefits to members or relatives, such as jobs, discounts or use of assets, can put the fund offside.

Trustees generally cannot acquire assets from related parties, with limited exceptions such as listed securities and business real property. Most business assets, including stock, plant and goodwill, fall outside them. In-house assets, covering loans to, investments in and leases with related parties, are generally capped at 5% of total fund assets.

SMSFs generally cannot borrow, other than through limited recourse borrowing arrangements, and cannot give a charge over fund assets. That rules out an overdraft secured against stock. All dealings must also be on commercial terms.

A worked example: the numbers on a typical fund

Hypothetical example: the Nguyen SMSF holds $1.7 million, matching the average fund size in the ATO's 2024-25 statistics. Its two members want to put $400,000 into a family catering business, about 23.5% of the fund in one unlisted venture.

If the business ran through a related entity with no exemption, the 5% in-house limit would cap exposure at $85,000, leaving the proposal $315,000 over.

The tax stakes are real too. On $40,000 of profit, the 15% rate means $6,000 of tax. If the income were treated as non-arm's length and taxed at 45%, the bill becomes $18,000, a $12,000 difference in one year.

A sector under the microscope

The Australian National Audit Office (ANAO) is testing whether the ATO manages SMSF risks, ensures compliance and sanctions non-compliant funds effectively. No tabling date has been given.

The SMSF Association says the ATO has moved from a mainly educative role to an actively regulatory one, and asked the ANAO to test whether it is risk-based, proportionate, transparent and timely. "Clear, timely guidance is a frontline compliance tool," chief executive Peter Burgess said.

It also pointed to the Government's August 2026 plan to require written investment strategies upfront, with powers to delay SMSF registration and restrict rollovers pending checks. That policy is announced but not legislated. A fund that placed a large share of assets in one operating business would be the kind of concentration those measures target.

How SMSFs actually invest

ATO June 2026 quarter statistics show 680,301 SMSFs, 1,246,552 members and estimated assets of $1.107 trillion. Listed shares are the largest asset class at 26%, followed by cash and term deposits at 16%.

The more common link to business is indirect: many funds own business real property and lease it to a related business at market rent, a permitted exception.